The biggest step down came in two minutes late in the morning. The low arrived shortly after Fed Vice Chair Philip Jefferson said a decision "may take more time," and a partial rebound followed remarks from Minneapolis Fed President Neel Kashkari.
Traders on Kalshi spent Thursday marking down the chance of a Fed rate increase in October, then pared some of the decline.
The contract that pays out if the Fed raises rates by a quarter point at its Oct. 27-28 meeting traded at 35 cents just after 5 a.m. Eastern and peaked at 38 cents around 7 a.m. It held at 34 cents through 11:18 a.m. Between 11:37 and 11:39 a.m., it dropped from 33 cents to 27 cents.
It traded between 29 and 31 cents around 1:20 p.m., hit a session low of 23 cents at 1:40 p.m. and spent much of the next 15 minutes at 24 to 25 cents. By 2:02 to 2:08 p.m. it was back at 27 cents.
The contract for no change at the meeting moved the other way. It traded at 75 cents at 1:44 p.m., peaked at 76 cents at 1:53 p.m. and stood at 71 cents at 2:06 p.m. Prices are market-implied probabilities, not forecasts.
What was happening around the moves
The two-minute drop late in the morning coincided with a sharp, sudden fall in the two-year Treasury yield, which slid about 10 basis points heading into midday with no single catalyst.
The session low came minutes after Vice Chair Philip Jefferson spoke at the University of Virginia. "My colleagues and I will need to come to our own judgment, which may take more time," he said. Jefferson and New York Fed President John Williams, who said Tuesday there was "no need for urgency," both sit in the Fed's informal leadership group with Chairman Kevin Warsh.
The rebound to 27 cents followed remarks from Kashkari, who said inflation remains too high and that he expects more rate increases, while saying he was not sure the next one should come in October. He projected one more increase this year and one in 2027.
Against the futures market
Kalshi's 27 cents sits below futures pricing, which put the chance of an October increase at about 34% on Thursday, down from about 71% on Monday. Goldman Sachs economists moved their forecast for the next increase to December late Wednesday, saying they "see a strong chance that the FOMC will ultimately conclude that additional rate hikes are unnecessary."
On Wednesday afternoon, the October contract traded at 39 cents. Thursday's 2 p.m. price is about 12 cents below that.
The timing question
The October contract pays only on an October move. A December increase resolves it as no change. Part of the drop may reflect traders moving the next increase later rather than doubting it will come.
Two readings
One reading is that Thursday's repricing is the market catching up with a Fed leadership that has now said twice in a week it is in no hurry, which leaves October as a meeting to hold.
A second reading is that the move runs against the day's inflation evidence. A factory survey showed prices paid jumping 6.8 points, Kashkari still expects more increases, and long Treasury yields touched their highest since 2002 before easing.
Friday morning
The September jobs report at 8:30 a.m. Eastern on Friday is the first test. A strong number would show whether the October contract can climb back into the mid-30s. A weak one would move attention to the December contract.