At its September meeting, the Federal Reserve raised interest rates for the first time in more than three years. Now, Kalshi traders are pricing another hike at the Fed’s October meeting.
The market currently prices a 25-basis-point increase at 66%, up from 50.8% on Sept. 21, while the chance of holding rates steady is priced at 34%.
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Will the Fed raise rates again?
Kalshi traders aren’t the only ones who think the Federal Reserve will raise interest rates in October.
CNBC reported that Fed Governor Michael Barr said this week that further interest-rate increases are likely to be needed to bring inflation back toward the central bank's 2% target.
“In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” Barr said. “We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that.”
S&P Global's September flash PMI data also showed renewed inflationary pressures, with companies' input costs rising at their fastest pace in nearly four years as fuel and transportation costs increased.
The Wall Street Journal reported that money markets at the time assigned a 55% probability to another 25-basis-point increase in October.
“The dollar has extended gains since the Fed’s decision, taking the DXY index – which measures the dollar’s value against a basket of currencies – to an eight-week high of 100.967 in European afternoon trade,” The Journal reported. “The euro hit an eight-week low of $1.1397, while sterling slumped to a 12-week low of $1.3260 as rate differentials shifted in the dollar’s favor.”
“Richmond Fed President Thomas Barkin and Boston Fed President Susan Collins on Tuesday joined a chorus of policymakers indicating more rate rises were possible,” The Journal reported. “Fed official Austan Goolsbee and Alberto Musalem also appeared to endorse the prospect of further interest rate increases in comments earlier this week.”
Mortgage rates
Expectations for tighter monetary policy have coincided with another increase in mortgage rates.
CNN reported that mortgage rates reached 7% for the first time since January of last year. Freddie Mac reported that the average 30-year fixed mortgage rate reached 7.03% this week, which is up from 6.95% last week. It was the fifth straight week that mortgage rates increased, meaning “larger monthly payments and less purchasing power for buyers.”
“Beyond the immediate financial constraints, the 7% threshold is a foreboding psychological barrier,” Bright MLS chief economist Lisa Sturtevant told CNN. “Crossing this mark could create a chilling effect on the market, leading to home sales transactions to slow considerably this fall.”
The Fed's next policy meeting is scheduled for Oct. 27-28. The central bank raised its target range by 25 basis points to 3.75%-4% at its September meeting.
The takeaway:
Kalshi markets now predict
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