Traders on the two largest prediction markets trimmed the chance of a quarter-point Fed increase to about 62% to 65%, in two steps that did not follow Friday's economic reports.
The market-implied chance of another Federal Reserve rate increase in October fell on Friday. The timing of the decline does not match the day's news.
On Polymarket, the price of a 25-basis-point increase at the Oct. 27-28 meeting held at 66.5 cents through 9 a.m. Eastern, then fell to 64.5 cents by 9:30. It recovered to about 65.5 cents in late morning before dropping to 60.5 cents at 12:30 p.m., and it traded near 62.5 cents from 1 p.m. through about 2:20 p.m. The price of no change rose from 32.5 cents to 36.5 cents.
On Kalshi, the matching contract closed each hour at 67 to 68 cents from 1 a.m. to 9 a.m., slipped to 66 cents at 10 and 11 a.m., and fell to 64 cents at noon and 1 p.m. before ticking up to 65 cents at 2 p.m. The contract traded about 100,000 times over 24 hours, with about 530,000 contracts open.
The timeline
The day's scheduled data came early. The durable goods report at 8:30 a.m. showed business equipment orders up a stronger-than-expected 1.6%, and the market did not react to it in the half hour that followed. The first decline began in the 9 a.m. hour, before the University of Michigan consumer survey at 10 a.m. That survey showed year-ahead inflation expectations rising to 4.6%, a reading that would, if anything, support a hike. The second, larger decline came between 11 a.m. and 12:30 p.m., with no Fed speech or data release in that window.
Two-year Treasury yields, the part of the bond market most sensitive to Fed expectations, drifted lower during the morning, to about 4.89% to 4.91%, which is consistent in direction with the prediction markets. Futures-implied odds for October were around two in three.
The context
The Fed raised its benchmark to a range of 3.75% to 4% on Sept. 16, its first increase since 2023, and 16 of 18 officials projected further increases this year. Governor Michael Barr said on Sept. 23 that "further policy adjustments are likely to be needed," and odds climbed toward 70% after his remarks. The October meeting falls six days before the Nov. 3 midterm elections.
Friday's move is the first sustained softening since then. Position squaring ahead of the weekend, or ahead of Wednesday's August personal consumption expenditures report, would produce a move of this shape. So would a quiet reassessment of the data. The prices alone do not distinguish between them.
The Sept. 30 PCE report is the next direct input. A hot core reading would likely push both contracts back toward 70%. A soft one would test whether the October hike remains the base case at all.