Kalshi traders raised their expectations of an October Federal Reserve rate hike after a new inflation report showed consumer prices rising faster than anticipated.
Kalshi's October Federal Reserve decision market shows a 33% chance of a 25-basis-point rate hike, up from 16% before the report. The probability of the Fed holding rates steady fell from 84% to 66%.
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The latest inflation numbers
The New York Times reported that the Consumer Price Index Report shows prices rose by 0.6%. The increase is the largest monthly increase in the last five months.
Rising energy costs drove September's inflation increase, with gasoline prices accounting for more than half of the monthly rise in the Consumer Price Index.
“The bulk of the increase stemmed directly from energy prices, which have shot higher this year because of the war with Iran,” The Times wrote. “Gasoline prices, which in late September rose to the highest level in four months at nearly $4.50 a gallon, surged 9.1% for the month. That accounted for more than half of the overall monthly increase in prices. They are up 34.2% over the past year.”
Other financial markets also showed a sharp increase in expectations for an October rate hike.
Reuters reported that "traders had priced interest-rate futures about a 22% chance of an October rate hike. After the report, which also showed faster underlying inflation than economists had anticipated, the implied probability of a rate hike at the Fed's October 27-28 meeting rose to around 40%."
Federal Reserve officials have also expressed concerns about persistent inflation, although the timing of additional interest rate increases remains uncertain.
The Associated Press reported earlier this week that officials "unanimously agreed" at last week's meeting that interest rates would need to be raised to combat inflation.
"The officials unanimously agreed that inflation was still elevated and had not made much progress towards their 2% target in recent months, the minutes said," The AP reported. "The Fed increased its key interest rate at the Sept. 15-16 meeting by a quarter-point to about 3.9%, its first increase in three years."
Trump criticizing Kevin Warsh
The inflation report also coincided with higher market expectations that President Donald Trump will publicly criticize Federal Reserve Chair Kevin Warsh.
The probability of Trump publicly criticizing Warsh before April 2027 rose from 33% to 48%. The price for criticism before January 2027 increased from 35% to 37%, while the price for criticism before December rose from 21% to 27%.
The Motley Fool reported that President Trump "hasn't been shy about voicing his displeasure with the [Federal Open Market Committee's] stance on interest rates." He regularly criticized former Fed Chair Jerome Powell. Following the September meeting, "President Trump took a very subtle jab at Fed Chair Warsh for not voting against what he refers to as a 'very hostile' board. But according to the head of the central bank, rate hikes were completely justified."
With inflation moving further above the Fed's 2% target, traders will be watching whether Warsh and other policymakers favor another rate increase at their October meeting.
The takeaway:
Kalshi markets now predict:
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