Kalshi traders expect the Federal Reserve to raise interest rates at its Dec. 9 policy meeting.
Kalshi's December Fed decision market shows an 87% chance of a 25-basis-point increase, a 12% chance of a larger increase and a 3% chance that rates will remain unchanged.
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Inflation data fuels expectations of another Fed rate hike
Persistent inflation is a key factor behind expectations that the Fed will raise interest rates in December.
Reuters reported that the Consumer Price Index rose 0.4% in October, down from 0.6% in September. The core index, which excludes food and energy prices, rose 0.3% for the third month in a row.
Fed Governor Christopher Waller said Nov. 10, hours before the October inflation report was released, that he was leaning toward supporting a quarter-point increase in December. But if core CPI came in “around 0.3 percent or even higher,” he said a half-point hike should be considered, The Washington Post reported.
“Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take,” Waller said. Core CPI rose 0.3% in October, meeting his threshold.
The Federal Reserve has adopted a gradual rate-hike approach, but that may change. Dallas Fed President Lorie Logan said it “may be possible to move more rapidly” on interest-rate hikes.
“The goal should be to make policy modestly restrictive so we can sustainably deliver both maximum employment and stable prices,” Logan said.
The New York Times’ Colby Smith wrote that the Fed has limited options as inflation pressures persist. Smith wrote that the only question is whether the Fed will accelerate its response or signal consecutive rate increases.
“Financial markets have for now leaned into the latter option, penciling in more rate increases in 2027 than previously,” Smith wrote. “So too have many economists, who have largely downplayed the idea that the Fed will raise rates by half a percentage point next month even as they affirm the need for a faster pace of tightening.”
Other central banks are also raising interest rates to address inflation. The Wall Street Journal reported that the Bank of Canada governing council raised its policy rate to 2.5% in late October “to dampen upside inflation risks despite elevated uncertainty and the presence of economic slack, according to the minutes of the central bank’s most recent policy deliberations.”
The Guardian reported that the National Institute of Economic and Social Research (NIESR) predicts the Bank of England “is risking higher interest rates for longer after a hesitant response to rising inflation.”
The Bank of England’s Monetary Policy Committee raised the rate from 3.75% to 4% last week “and hinted at another increase to combat inflationary pressure unleashed by the Iran war.”
NIESR director David Aikman urged the Bank of England to take a more aggressive approach to controlling inflation.
“Inflation is set to rise above 4% in the new year, just as most pay awards for 2027 are being agreed, so the risk that it becomes embedded is rising,” Aikman said.
The takeaway:
Kalshi markets now predict:
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