Kalshi traders give a 76% chance the Federal Reserve holds interest rates unchanged at its July meeting, with a 25% probability of a 25-basis-point hike, as Chairman Kevin Warsh prepares to announce the central bank's latest policy decision Wednesday afternoon.
The FOMC is scheduled to announce its decision Wednesday at 2 p.m. ET, followed by a press conference with Warsh.
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Interest rates
Kalshi’s market forecast broadly tracks with futures traders: CME FedWatch shows a 71.7% probability of a hold and a 28.3% chance of a hike.
CNBC's Jessica Dickler reported that Warsh is expected to hold, even “as higher energy prices and renewed tensions with Iran have complicated the picture.”
Inflation has exceeded the Fed’s 2% target since 2021, though an unexpected decline in June provided some relief. Oil prices have since climbed sharply following the U.S. escalation of military action against Iran, which has slowed commercial traffic through the Strait of Hormuz. Some market participants expect the next potential policy move to come in September.
Why no change?
Several factors are weighing against a rate increase at this meeting.
CNBC’s Matt Peterson wrote, “For one, Warsh arguably doesn’t want higher rates right now, and he hasn’t promised anything.” Warsh has also pledged to end the practice of “forward guidance,” in which the Fed signals its intended rate decision before FOMC meetings convene.
A rate increase would also run counter to the White House’s stated position. President Trump, who has repeatedly called on the FOMC to lower rates, told reporters aboard Air Force One on Monday that “Rates should be lowered…We have other countries that are paying less interest rates,” Reuters reported.
“That might be a problem if the spike in energy prices looked to be raising prices more broadly across the economy,” Peterson wrote, “but consumer-price-index data for June released just before Warsh spoke showed broader prices actually falling before the recent return to hostilities.”
The path to a hold is not without friction, however. Warsh faces a divided FOMC, with perhaps three or four of the 12 voting members prepared to call for immediate rate increases.
“Warsh would face an uphill climb at the committee meeting to merely keep rates steady,” Peterson wrote, “so how he addresses each of those three key rationales will be revealing.”
The takeaway:
Kalshi markets now predict
Fed maintains current interest rate: 76%
Fed hikes interest rate by 25bps: 25%
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