Kalshi's contract on a quarter-point increase slid to 35 cents overnight, even as Fed officials insisted inflation remains too high.
Traders on Kalshi spent the night betting that the Federal Reserve will hold in October. The officials doing the deciding have not said the same.
The exchange's contract paying out on a quarter-point increase at the to meeting traded at 35 cents early Thursday, implying a 35% probability. That is down from 39 cents on Wednesday afternoon. The contract on no change traded at 65 cents.
The overnight drift came without a new catalyst. It extends the repricing that followed Wednesday's softer August inflation data and New York Fed President John Williams' remark earlier in the week that there is "no need for urgency."
Two markets, one direction
Interest-rate futures tell a similar story at a slightly more hawkish level, with odds of an October hike at 38%. The 3-point gap between the futures market and Kalshi suggests prediction-market traders have moved a little further and faster toward a pause. Both are far below the 71% futures odds of a week ago.
The officials push back
Fed speakers have not endorsed the shift. Minneapolis Fed President Neel Kashkari said Wednesday evening that he expects the Fed to raise rates again, "although it depends on how the economy performs." He added: "My basic takeaway on the inflation data is that inflation is still too high." Chicago Fed President Austan Goolsbee described a "record divergence" between economic data and how Americans view the economy.
The policy rate sits at a range of 3.75% to 4.00% after September's increase.
The divergence that matters
The most telling contrast is between the prediction market and the bond market. As the probability of an October hike fell, the 10-year Treasury yield climbed to its highest level since 2002. If investors truly expected a gentler Fed, long-term yields would typically ease. Instead, they rose.
The divergence could reflect several forces. Long-term yields may be responding to Treasury supply, growth expectations or term premiums rather than the next Fed decision alone. Prediction-market traders could also be underestimating the chance of another hike. The next economic releases will test those views, although the two markets are pricing different horizons.
What to watch
Three Fed officials speak Thursday: Vice Chair Philip Jefferson at 1:30 p.m. Eastern, Vice Chair for Supervision Michelle Bowman at 3 p.m. and Governor Lisa Cook at 3:30 p.m. The decisive test arrives Friday with the September jobs report, where economists expect about 90,000 new positions. A strong number would challenge the overnight slide. A weak one would extend it.