The contract on a quarter-point Fed increase this month repriced within seconds of the 8:30 a.m. inflation report and peaked at 9:06 a.m. By early afternoon it stood at 35 cents after waves of selling, below the probabilities implied by fed funds futures.
The trading record of Kalshi's October rate contract shows how fast traders moved on Wednesday's inflation data, and how much of that move they later reversed.
Kalshi's contract paying out if the Federal Reserve raises rates by a quarter point at its Oct. 27 and 28 meeting traded between 17 and 21 cents from early Wednesday until the September consumer price report. Its last trade before the 8:30 a.m. release was at 18 cents.
The core index came in a tenth of a point above forecasts, at 0.3%, and the contract repriced almost immediately. By 8:32 a.m. it was trading at 33 cents, as buyers took about 25,900 contracts at 33 and 34 cents in a single burst. In the 8:44 minute, more than 200 consecutive trades printed at 45 cents.
Buying continued. Between 8:45 and 9 a.m. the contract traded at 44 to 48 cents, and between 9:05 and 9:10 a.m. it ran from 49 to 55 cents. The high, 55 cents, printed at 9:06 a.m., about 36 minutes after the release.
The selling
The peak did not hold. Prices eased to 47 to 50 cents in the following quarter-hour, 41 to 47 cents through about 9:45 a.m. and near 41 to 42 cents around 10 a.m. From about 10:20 a.m. through 1:46 p.m. Eastern, the contract traded between 32 and 40 cents, and two blocks of selling set the tone.
Between 10:34 and 10:36 a.m., sellers hit bids for about 40,400 contracts at 36 and 37 cents. Buyers answered with about 20,100 contracts at 38 cents a minute later. Then, between 12:29 and 12:31 p.m., about 30,800 contracts traded at 35 cents with sellers initiating. Over the late-morning and early-afternoon session, contracts initiated by sellers outnumbered those initiated by buyers by more than 2.5 to 1.
The last trade before 1:47 p.m. was 35 cents. That is roughly double the pre-report price and 20 cents below the morning high. Of the 37-cent rise from 18 to 55, sellers took back 20 cents, or about 54%.
Two gauges, one direction
Futures-based odds followed a similar arc. CME FedWatch data put the probability of an October increase at about 22% before the report. Readings after the release ranged from about 44% to 53% during the morning, and CME data showed the odds easing to less than 40% later in the day. The two measures are built differently and were observed at different times, so the gap between them is not a trading opportunity, but both show a market that moved October from unlikely to plausible and then partly back.
What the price does and does not say
A 35 cent contract implies a 35% chance of an October increase under the contract's rules. It is a price set by traders, not a forecast by the Fed or a measure of the true probability. What it shows clearly is direction and speed: traders roughly tripled their implied odds within 40 minutes, and then large sell orders brought the price back down.
Market implications
The case for an October hike is that the price is still about twice its pre-report level after a second straight 0.3% core reading. The case against is that more than half of the morning's gain has already been surrendered, the heaviest selling came after the initial excitement passed, and Vice Chair for Supervision Michelle Bowman said Wednesday she feels no urgency to move again.
What to watch
Thursday's September producer price and retail sales reports, which will move the contract again, and Fed Chairman Kevin Warsh's remarks in Bangkok before the Fed's quiet period begins.