On Sept. 25, Kalshi traders priced a 25-basis-point October rate hike at 65%. Now, the market shows the same price for the opposite outcome.
The market for the Federal Reserve’s decision on interest rates for October shows a 65% chance that the Fed will maintain the current rate and a 33% chance that the Fed will hike the rate by 25 basis points.
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Inflation comes in below expectations
The sharp change in the Kalshi market comes after new inflation data showed price pressures were softer than economists expected.
CNBC reported that the “personal consumption expenditures price index increased a seasonally adjusted 0.3% for the month, putting the 12-month gain at 3.4%.”
Core PCE, which excludes food and energy, rose 3.0% year over year, below the 3.3% economists expected, according to CNBC. The annual readings came as the Bureau of Economic Analysis changed how it computes several components of the index.
Reuters reported that market expectations for a rate hike at the Fed’s October meeting “slumped to about 39%, according to CME’s FedWatch tool, from roughly 51% in the prior session and nearly 71% a week ago.”
The Wall Street Journal reported that New York Fed President John Williams also signaled on Sept. 29, 2026, that policymakers may not need to raise rates again immediately. He said that the recent action taken by the Fed may not require an additional rate hike for October.
“With the policy action we took at our September meeting,” Williams said, “there is no need for urgency.”
David Russell, global head of market strategy at TradeStation, cautioned to CNBC that the August inflation data does not reflect more recent increases in diesel prices.
“This is good news for investors worried about the recent surge in bond yields, and it bolsters the case for not hiking in October,” Russell said. “However, it’s also relatively old data at this point that doesn’t reflect this month’s surge in diesel prices.”
Following the inflation report, markets priced a lower probability of an October hike, while expectations for another increase shifted further toward December.
Inflation risks remain
The Fed's September rate increase was initially expected to give policymakers time to assess whether inflation pressures were easing before raising rates again.
The New York Times reported that when the Federal Reserve raised interest rates to combat inflation, “many expected that it would buy the central bank time to see whether price pressures were easing before taking action again.”
Inflation risks have not disappeared, particularly as the war in Iran and disruption in the Strait of Hormuz have contributed to higher oil and fuel prices.
Reuters also reported that “The rising prices of crude oil from the US-Iran war and sky-high diesel fuel costs have stoked inflation worries and pushed US Treasury yields higher. Fed officials have indicated more rate hikes might be needed if price pressures fail to moderate after the central bank raised interest rates by 25 basis points this month.”
The takeaway:
Kalshi markets now predict:
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