Fed rate-decision markets: basis points and resolution sources

What the FOMC actually changes

A Fed rate-decision market asks you to price one outcome of a policy meeting. The decision source is the official statement published by the Federal Reserve after the Federal Open Market Committee (FOMC) meets. That statement defines the target range for the federal funds rate as 2 bounds, for example 4.00 to 4.25 percent. A speech, a press briefing or a market rumor is not the same document, and a market whose rules name the statement will not resolve from those.

Prices and thresholds are quoted in basis points. One basis point is 0.01 percentage point, so 25 basis points equal 0.25 percentage point. Suppose a statement moves a hypothetical range from 4.00 to 4.25 percent down to 3.75 to 4.00 percent. Each bound falls by 25 basis points and the range width stays at 25 basis points. That arithmetic measures 2 bounds. It says nothing about where rates are now or where they go next, and a change in a Treasury yield is a different quantity that you cannot swap in for the policy decision.

From a 2-bound statement to one binary question

A binary market must collapse a statement with 2 numbers into yes or no. Common constructions are unchanged, a cut of 25 basis points, a cut of 50 basis points or more, or no change against any move. These are mutually exclusive only when the written rules are complete and consistent: the rules must fix the exact range or change that counts, the release time and the source. If the source or deadline is vague, 2 outcomes that look exclusive can both be argued at settlement.

One basis point is small, but the label matters more than the size. A rule that counts the lower bound, one that counts the upper bound and one that counts the midpoint can produce different winners from the same statement when the range changes shape, for instance when the width narrows or widens. Read the rule before you read the price.

Worked example: fixing the threshold before pricing

The case below is illustrative. It uses round numbers to show the arithmetic of a range change and reports no current market level, probability or fee. Assume the rules say the market resolves from the FOMC statement on a named date and that the threshold is the midpoint of the announced target range. The prior hypothetical range is 4.00 to 4.25 percent, midpoint 4.125 percent. A 25 basis point cut gives 3.75 to 4.00 percent, midpoint 3.875 percent. A 50 basis point cut gives 3.50 to 3.75 percent, midpoint 3.625 percent. Each step is 25 basis points apart.

With the threshold and the measurement basis written down, you can compute a payoff condition and a break-even probability instead of trading the headline number. On a binary share bought at price p, the break-even probability of the winning outcome is p, ignoring any fees, and the loss case is the full p per share if the other side resolves. If the rules fix unchanged as the range staying at 4.00 to 4.25 percent, the same midpoint of 4.125 percent applies and the arithmetic does not move.

Resolution source and the 50-50 edge case

Ordinary binary markets pay 1 per winning share and 0 per losing share. A rare unknown or 50-50 resolution can pay 0.50 to each side, which is not a universal cancellation or refund. Rules name the source, the deadline and the edge cases, and the title alone is not enough. On Polymarket, ordinary prediction markets are resolved by UMA, while Up/Down markets use a Chainlink time-weighted average price (TWAP), which averages the price over a window rather than reading one tick. Up/Down compares the same asset stream at start and end: a final value at or above the start resolves UP, below resolves DOWN. Different exchange candles can give different readings, so check the rules of the specific market.

Source-check protocol before you commit

Take the official FOMC statement and calendar first, read the announced target range as printed, then align it with the market rules. If the rules mention a percentage change, a midpoint, a rounding convention or a publication time, test each condition against the statement text. Where a term is undefined, treat the market as unresolved risk until the rules are clarified, and never substitute a speech for the statement the rules name.

This sits inside a wider set of macro questions. To place a rate decision among growth and demand indicators, start with the guide on the economy. To separate a policy move from consumer price changes, read about inflation. When you compare today's price with a later outcome, the page on expected outcomes explains how a forward-looking measure differs from realized data. Use those routes for context, not as a replacement for the statement.

Limits and what stays open

The source material behind this page supplies no current or next actual rate forecast, no live market probabilities and no verified fee schedule, so no current level, expected move or cost should be read out of the worked case. It also does not establish that every venue uses the same resolver or the same candle stream. Check the rules of the exact market you intend to trade, and if you cannot, the losing case is the ordinary one: you pay the price and the other side takes it.

One question stays open: how should a market treat a change that shifts both bounds while keeping the width, against a change in the width itself? The written rules decide. Until they are explicit, a market that looks exclusive can still leave room to argue at settlement. Treat the official document and the resolution rules as the 2 required inputs, and add no assumption that neither contains.