Kalshi traders flip to October Fed hold after softer core PCE reading

Traders on Kalshi sharply reversed their expectations for the Federal Reserve’s October decision after an inflation report showed softer-than-expected underlying price pressures. The prediction market put the chance of the Fed leaving rates unchanged at 65%, while the probability of a 25-basis-point increase stood at 33%.

That was a substantial change from Sept. 25, when a quarter-point October increase carried a 65% implied probability on Kalshi. The move followed the release of August personal consumption expenditures data, a closely watched inflation measure for the central bank.

The Bureau of Economic Analysis reported that the headline PCE price index rose 0.3% in August and 3.4% from a year earlier. Core PCE, which excludes food and energy, increased 0.2% for the month and 3.0% over 12 months.

The 3.0% annual core reading was below economists’ 3.3% expectation, according to Kalshi’s report. The BEA’s release also incorporated its annual update of the National Economic Accounts, revising personal-income and outlays estimates back to January 2021.

The inflation figures arrived after the Fed raised rates by 25 basis points in September. New York Fed President John Williams said on Sept. 29 that the action did not create a need for urgency, adding: “With the policy action we took at our September meeting, there is no need for urgency.”

Markets also shifted expectations for a further increase toward December, while inflation risks remained unresolved. Higher oil and fuel costs associated with the war in Iran and disruption in the Strait of Hormuz had added to concerns about price pressures and pushed Treasury yields higher.

Kalshi has operated since 2021 and is the largest federally regulated prediction market overseen by the Commodity Futures Trading Commission, according to a Federal Reserve discussion paper. The paper found that its rate-decision probabilities can respond sharply to major economic and financial developments, with uncertainty in its interest-rate distributions declining notably after data releases, particularly inflation reports.

The August report also showed consumer spending remained strong. Current-dollar personal consumption expenditures increased 0.9%, or about $190.8 billion, while inflation-adjusted spending rose 0.6%. Personal income grew 0.2%, and the personal saving rate was 4.1% of disposable income.