The prediction market Polymarket now assigns an 83.8% probability that the Federal Reserve will deliver zero rate cuts in 2026, a shift that follows recent comments around US-China decoupling. The bet reflects growing expectations that the central bank will hold rates steady, even as the economic outlook grows more uncertain.
What the market is pricing in
Polymarket traders have piled into contracts that pay out if the Fed’s benchmark rate stays unchanged through the end of next year. The 83.8% figure is a sharp jump from just a few weeks ago, when the implied probability sat below 60%. The move comes after policymakers and officials made remarks about reducing economic interdependence between the United States and China, a theme that has rattled bond markets and currency forecasts.
Investors are now betting that the Fed will keep its policy rate at current levels, despite earlier projections that the central bank would begin cutting by mid-2025. The shift suggests that the market sees the decoupling rhetoric as a potential driver of persistent inflation or slower growth that could delay any easing cycle.
Finance – not AI – as the bigger constraint for China
While much of the public debate about China’s economic future focuses on artificial intelligence, a China-focused investor told clients that the real bottleneck is finance. The investor, speaking on a recent call, argued that China’s reliance on U.S. capital markets for fundraising and listings has become a structural vulnerability. Cross-border frictions are rising, the investor said, making it harder for Chinese companies to access the foreign investment they need to grow.
“The AI narrative is exciting, but the capital pipeline is what actually feeds the ecosystem,” the investor said. “If that pipeline gets squeezed, no amount of domestic innovation can replace it.” The warning echoes a growing concern among fund managers that the financial decoupling between the two largest economies is already underway, even if the trade numbers haven’t fully reflected it yet.
How the two stories connect
The Polymarket data and the investor’s warning share a common thread: the belief that decoupling is real and will have concrete consequences. For the Fed, tighter financial links between the US and China had historically acted as a cushion, allowing capital to flow freely and smoothing out shocks. If that cushion is removed, the market seems to be pricing in a more volatile – and possibly more hawkish – monetary policy path.
For China, the investor’s point is that the country’s AI ambitions will hit a wall if foreign capital stays away. The State Administration of Foreign Exchange recently reported that cross-border securities investment outflows from China accelerated in the first quarter, and IPO activity on US exchanges by Chinese companies has dropped sharply from the peak in 2021.
What happens next
Both the Fed and China’s regulators are watching the same data. The Fed’s next policy meeting is in December, and traders will be looking for clues in the minutes about how seriously officials treat the decoupling risk. Meanwhile, Chinese companies with pending US listings face a series of audit deadlines under the Holding Foreign Companies Accountable Act. The next compliance deadline is set for early 2026, and if no agreement is reached, dozens of Chinese firms could be delisted from American exchanges. That deadline may be the moment when the finance constraint the investor warned about becomes impossible to ignore.
