Whisper Report May 5, 2023 · 12PM EDT
■ Jobs report comes in above expectations
■ Inflation expectations for April diverge heavily
■ Kalshi forecasts no more rate hikes in 2023
Growth Report
Job growth comes in well above expectations
On Friday, it was reported that the U.S. gained 253,000 jobs in April, above Kalshi’s forecast of roughly 188,000. That 188,000 would’ve been the lowest level of jobs added since the winter of 2020-21, during the first winter COVID surge. Despite last week’s weak GDP print, job growth has on the whole remained strong, above market expectations and above the expectations of the FOMC. Positive news accompanies: the prime age employment-population ratio rose above pre-COVID levels, and African-American unemployment fell under 5% for the first time in American history. The March jobs number was revised down to a more than two year low of 165,000 from 236,000; and yet, the Atlanta GDPNow forecast grew more bullish on growth for Q2 in the last week, with an estimate of 2.7%, up enormously from last week’s 1.7%. Kalshi traders reduced odds of two consecutive quarters of negative GDP growth sometime in 2023 to 33%.
The probability of a 2023 recession is forecasted to be…36%
Two consecutive quarters of negative GDP growth
Fed Fund Rate Report
No rate increase expected in June
More FOMC officials agree to take a pause
Kalshi markets project the Federal Reserve to hold the target federal funds range in June at 5.00-5.25%. The probability of at least a 25 bp rate hike is only 16%. This was only modestly bumped up by Friday’s job growth from 13%, suggesting that April’s payroll print won’t have much of an impact on FOMC thought. This would mark the first meeting the FOMC has not hiked at by at least 25 bp since January 2022. CME’s FedWatch tool gives even lower probabilities of a June hike, with a 91.5% probability of a pause and a 14% probability of a hike.
Over the long-term, Kalshi markets have had a notable change in the last few weeks. They now expect no additional hikes over the course of the year. Traders project that the target rate range will peak at 5.00-5.25% with a 67% likelihood.
CME’s Fed Futures aggressively position the rate range to fall this year, with a 34.5% chance of doing so at the July meeting, and expecting a rate drop of 75 bp by the December meeting. This is a stark contrast with Kalshi traders who, by end-of-year, expects the target rate range to be the same place it is today. On Kalshi, the probability of a rate cut has remained stable at 48%.
Probability of a 25 bp hike in June is...16%
Probability of 5.00-5.25% being the highest rate this year…67%
The probability of a rate cut in 2023....48%
Inflation Report
Inflation expectations diverge
Headline CPI inflation is expected to come in for April at 0.35% (month-over-month), compared to March’s modest 0.1% price growth. This is a slight decline from last week’s 0.37% estimate. That estimate, however, is far off from the Cleveland Fed’s Inflation Nowcasting tool, which projects 0.61% month-over-month CPI inflation, stable from last week. Over the last month, the Nowcast estimate has grown while Kalshi’s expectations have fallen. Comparatively, Kalshi markets estimate a mere 4% chance that inflation will be at least 0.6% in April. Modal expectations of core inflation, which strips out volatile energy and food prices, are unchanged at 0.33% for April. Annual inflation expectations, meanwhile, fell to 3.69%, just slightly below last week’s 3.71%.
2023 US annual inflation is forecasted to be…3.69%
About the Kalshi Whisper
The “whisper” number is a private, unofficial number that is circulated by bank analysts to their clients, including high net-worth individuals, Wall Street traders and hedge funds during the blackout period after the official consensus is published and before data is released. Analysts and economists at banks continue to revise their estimates during the blackout period, but share their new forecasts with a limited clientele. They call these late forecasts “whispers” because they’re not public and not broadly accessible. Kalshi forecasts serve as a more accessible market-driven “whisper” during the blackout period, before the release tomorrow.
The Kalshi Whisper comes from market prices based on CPI, core CPI, target fed funds markets and other relevant Kalshi markets. Markets are purely directional: traders purchase binary contracts on a central-limit order book that pay out based on conditions such as “CPI inflation exceeds 0.2% in November 2022”. From these contracts, one can simply extract the probability of any given release. For example, the probability of CPI inflation equaling 0.2% is equal to the price that CPI inflation exceeds 0.1% subtracted by the price of CPI inflation exceeding 0.2%. Current projections are based on the last traded price for contracts. Federal funds rate projections come from binary markets that pay out on the basis of the upper bound of the Federal Funds target range.
Kalshi markets have a history of accuracy. The median Fed projections have correctly identified the size of the rate hike for each meeting since the first Kalshi Fed projection in July 2021. The median CPI forecasts have been equally accurate or more accurate than the Bloomberg economist survey and the Cleveland Fed Nowcast in 11 of the last 13 months.
Disclaimers
This communication is provided for information purposes only. Please read Kalshi research reports related to its contents for more information, including important disclosures.
This communication has been prepared based upon information, including market prices, data, and other information, from sources believed to be reliable, but Kalshi does not warrant its completeness or accuracy except with respect to any disclosures relative to Kalshi and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication.
Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Kalshi’s research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, Kalshi may be restricted from updating information contained in this communication for regulatory or other reasons.
This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of Kalshi. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitute your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of Kalshi.
Copyright 2023 KalshiEx · All rights reserved