Midterm races are hitting the home stretch, but on Wednesday, all eyes will be on the Federal Reserve. Kalshi traders are pricing a 93% chance that the central bank will hold steady on interest rates. Only 6% of traders are all in on a 25bps hike, while the possibility of a 25bps cut sits at just 1%.
Whether an October rate hike is imminent has divided Fed watchers this past month, with many initially expecting an increase. However, with the decision only a day away, most observers are now banking on the status quo of 3.75%–4.00% prevailing.
‘It is important to realize how fast the market changes,’ Kenneth Carow, professor of finance at Indiana University’s Kelley School of Business, told US News and World Report, noting that forecasts have fluctuated wildly. ‘This shows that even the most knowledgeable investors have a very difficult time predicting rates.’
Market sees hints in Fed honcho’s IMF talk
Fed Chair Kevin Warsh, like his predecessor Jerome Powell, is focused on tightening. Inflation has been over 2% for half a decade now and with progress on that front negligible, the FOMC seems unlikely to reverse course. Soaring energy prices have been a major contributor to ballooning prices, largely caused by supply chain issues linked to the Iran war.
At the Fed’s annual Jackson Hole retreat this past August — the first for Warsh, who took the helm at the Eccles building in May — the chair called the central bank’s 2% producer PCE goal ‘a firm, fixed target,’ CNBC said.
Speaking at an International Monetary Fund event in Bangkok last Friday during the IMF-World Bank Annual Meetings, Warsh praised the global trend in tightening. ‘There are no free riders,’ CNBC reports.
However, Warsh stressed that he was not signaling a decision ahead of the FOMC’s October meeting. ‘I don’t prejudge meetings,’ he told IMF Director Kristalina Georgieva during a fireside chat. ‘I don’t believe in saying now what I might do at the meetings that we have in the balance of this year.’
Nevertheless, the Fed chief’s comments were widely taken as a sign the Fed would hit the brakes this month. ‘Warsh’s comments indicate that the FOMC is set to pause in October,’ Goldman Sachs economists, led by Jan Hatzius, wrote in a note that was widely quoted in the press.
Warsh, for his part, is resolute. ‘It’s a new chapter at the Fed,’ he said in Bangkok, insisting he will not be engaging in previews or hint-dropping. ‘We’re not in that business anymore.’
Consensus says December hikes likely
Still, the market seems certain that rate increases will resume before the end of the year, an encore of September's 25bps increase. President Donald Trump, who has made no secret of his eagerness for cuts, seems likely to find a rate increase in his stocking on Dec. 9. Out of 100 economists polled by Reuters between Oct. 16 and 20, 94 expect the Fed to pause in October. All 100, however, anticipate a December hike.
And while the Fed is dropping no official line, Fast Company reported earlier this month that minutes released from the central bank’s most recent meeting show officials expect another increase will be necessary before 2026 comes to a close.
The takeaway:
Kalshi markets now predict:
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