Kalshi traders sharply increased their wagers on a September interest rate cut after fresh inflation data came in below expectations. The market for a 25 basis point cut at the Federal Reserve’s September policy meeting rose from 72% to 79% Tuesday morning, according to Kalshi data.
The move followed the U.S. Bureau of Labor Statistics’ report showing that the consumer price index (CPI) rose 2.7% year-over-year in July. That’s a touch cooler than the 2.8% increase Wall Street economists surveyed by Dow Jones had forecast. On a monthly basis, CPI increased 0.2%, matching June’s pace.
Core CPI, which excludes food and energy prices, climbed 3.1% from a year earlier — slightly above the 3.0% expectation. The BLS said shelter costs rose 0.2% in July, continuing to be the main driver of the monthly gain. Energy prices fell 1.1%, led by a 2.2% drop in gasoline, while food prices were flat as grocery costs slipped and restaurant prices inched higher.
The modest miss on headline inflation added to investor conviction that the Fed could move to lower rates next month, especially with broader market pricing already leaning in that direction. CNBC reported that the CME FedWatch Tool now implies an 87% probability of a September cut, consistent with the jump seen on Kalshi’s prediction markets.
The inflation data landed against a backdrop of easing trade tensions — at least temporarily — after President Donald Trump announced a 90-day pause on higher tariffs for Chinese goods. Equity markets responded positively, with Dow futures rising more than 200 points in early trading.
Investors will watch Thursday’s producer price index for more clues on inflation trends before turning their attention to the Federal Reserve’s Jackson Hole gathering at the end of August. That meeting could offer the clearest hints yet about whether policymakers believe inflation is low enough to justify a cut in September.
For now, the numbers — and the markets — are tilting in that direction. As long as inflation stays contained and growth headwinds from tariffs remain a concern, traders on Kalshi and beyond see a growing chance that the Fed will act.