Traders price in Fed cuts after CPI

Kalshi traders are treating Thursday’s inflation report as the final confirmation that the Federal Reserve will cut rates next week. August CPI came in at 2.9% year over year on the headline number and 3.1% on core, right in line with forecasts. That was enough for markets to double down on what they were already signaling: policy easing is about to begin.

In the September Fed decision market, contracts now put the odds of a 25bps cut at 86%, with just 10% pricing a bigger half-point move and 4% still holding out for no change. That balance has shifted steadily over the past month. Where traders once allowed for more hesitation, the latest jump in weekly jobless claims — the highest since 2021 — has all but sealed the deal in favor of a cut.

Looking further out, the 2025 cuts market shows traders positioning for more than a one-off move. The most likely outcome is now three cuts this year at 44%, with two cuts close behind at 39%. The odds of four cuts have climbed to 11%, reflecting the sense that the Fed could deliver a steadier pace of easing if labor market weakness deepens. That’s a notable change from midsummer, when two cuts was the dominant expectation.

Kalshi’s S&P 500 market tells the other half of the story: stocks are rallying as rate-cut expectations harden. Contracts tied to Thursday’s close are leaning higher, echoing Wall Street’s reaction. The S&P opened up and quickly notched new intraday highs, with Bloomberg noting that traders saw the CPI numbers as “in line” — not a reason to rethink the Fed’s next step. Equity markets have been brushing off short-term inflation noise and focusing instead on the path of monetary policy.

Before the report was released, the Kalshi consensus forecast showed 2.8% headline CPI and 3.1% core, which was nearly spot on, reinforcing how closely markets have been tracking the data. With the CPI market now closed, the focus has shifted entirely to the Fed’s meeting next week, and to how many cuts follow into year-end.

The August CPI report was marginally hotter than hoped, but the labor market data stole the show. CNBC reports that jobless claims spiked to their highest in nearly four years, raising pressure on Powell and the Fed to act decisively. Bloomberg also reports that the equity rally shows investors are already looking past the inflation print, convinced a 25bps cut is locked in.

Kalshi markets now forecast:

For traders, the CPI report was less a surprise and more a green light. Inflation may still be running above target, but the Fed’s focus has likely shifted toward protecting the labor market, and Kalshi markets are pricing in a cycle of cuts to match.

Sources: CNBC, Sept. 11, 2025; Bloomberg, Sept. 11, 2025.

^{This article may contain content generated with the assistance of artificial intelligence. It is provided for informational purposes only and does not constitute investment, trading, financial, or legal advice. Any opinions or market commentary are not recommendations. Trading involves risk and you should carefully evaluate your financial situation and consult a qualified advisor before making any trading decisions.}