The odds of a Federal Reserve rate hike surged on Friday after CPI data showed core inflation rose more than expected in August.
Kalshi’s market on the Fed’s decision in September showed a rate hike of 25bps at 81%, a 20 point jump from the previous day. Odds of the Fed maintaining rates dropped to 19%.
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Meanwhile, odds of a hike before 2027 jumped as high as 89%, an all-time high.
Kalshi’s market is not the only place where predictions on a Fed rate hike jumped. CME Group's FedWatch tool also showed markets pricing a nearly 90% chance of a rate increase at next week's Fed meeting.
“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” Northlight Asset Management chief investment officer Chris Zaccarelli told CNBC.
New inflation fears
The BBC reported that disruptions to shipping through the Strait of Hormuz amid the U.S.-Iran conflict have contributed to higher global energy prices.
The conflict in the Middle East caused traffic to slow in the Strait of Hormuz, driving up energy prices in a number of different sectors.
“Surging oil prices have been pushing up what drivers pay at the fuel pumps and eating away at household budgets for months,” the BBC noted, “and concerns remain over whether the economic impact of the US-Iran war will drive the cost of living higher.”
Fed Chair Kevin Warsh has offered few explicit signals about the Fed's next move, although he has repeatedly emphasized the central bank's responsibility to control inflation.
“Newly appointed Fed Chair Kevin Warsh has remained tight-lipped on where he sees interest rates going, but his repeated comments that the central bank’s focus should be on slowing price rises has further fueled expectations of an increase,” according to the BBC.
President Donald Trump, meanwhile, has continued to call on the Fed to lower interest rates. He posted on his Truth Social page, “The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change.”
The takeaway:
Kalshi markets now predict
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