Odds of a September Fed rate hike climb to 54% as Warsh holds steady in July

The Federal Reserve left interest rates unchanged this month, but Kalshi traders now narrowly favor a quarter-point increase at the September meeting.

Kalshi traders predict that the Fed will raise the interest rate by 25 basis points in September at a price of 54%. Traders also price the chances that the Fed will leave rates unchanged at 44%.

NPR reported that the Federal Reserve’s rate-setting committee voted 9 to 3 to “leave its short-term borrowing rate in a range between 3.5 and 3.75%” at today’s meeting. The three dissenting governors favored a quarter-point increase, a move Kalshi traders now narrowly expect at the September meeting.

Persistent inflation appears to be one reason traders expect the Fed could raise rates in September. The New York Times’ Ben Casselman noted that inflation has remained elevated for 63 months, leaving Warsh under pressure to explain how he plans to return inflation to the Fed's 2% target.

Kalshi isn't the only market pointing toward a possible increase. The CME Group's FedWatch Tool shows a 55.9% probability of a September rate hike, compared with 44.1% for no change.

CBS News' MoneyWatch reported that oil prices have surged in recent weeks, topping $100 a barrel, a development that experts say could keep inflation elevated in the near term.

Nigel Green, CEO of the investment firm deVere Group, wrote back in July in an email, “The Fed will find holding steady a harder case to make than it looked even a few weeks ago.”

The European Central Bank's decision may also signal that the Fed could raise rates in September. Reuters reported that the ECB decided to keep interest rates where they are for the time being but "held the door open to another increase in September, as renewed conflict in the Middle East has largely erased any hope of a quick moderation in energy costs."

The International Business Times also reported that there could be other indications that are causing investors to be cautious about interest rates in the coming months. The Commerce Department will release its first estimate of “second-quarter U.S. gross domestic product along with June’s Personal Consumption Expenditures price index, the inflation measure most closely watched by the Federal Reserve.”

Those reports could shape expectations ahead of the Fed's September meeting and help determine whether traders continue to favor another rate increase.

Kalshi markets now predict

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