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There is a growing belief in the market that the Federal Reserve will not
reduce interest rates in January. Traders at Kalshi have assigned an 85% chance
to the Fed leaving rates as they are, which is seen as a sign of continued
caution from policy makers even with the recent fall in inflation figures.
The price at Kalshi, a controlled betting market for events’ outcomes,
indicates that people are more confident about the central bank adopting a
wait-and-see approach during its next meeting. At present, only approximately
15% of traders anticipate that there will be any cut in interest rates compared
to much higher estimates made towards the end of last year.
Why Traders Are Backing a Rate Hold
This change is primarily driven by the strength of the American economy.
Although recent figures indicate a decrease in inflation from its highest
point, this has not been significant enough to provide a clear indication for a
green signal to the Fed.
On top of that, there is still a tight labor market
characterized by low jobless claims and wage growth levels showing that the
economy may withstand increased interest rates over extended periods.
Fed officials have always insisted on having “more confidence” in seeing
inflation move towards their target before they can lower interest rates. It
seems like traders are heeding this message.
In summary, everything appears calm at the Fed – just as the market sees
it.
Kalshi’s Odds Reflect Broader Market
Sentiment
The 85% probability at Kalshi closely matches what is currently factored
into futures and options markets concerning interest rates. Yields on bonds
have remained high and there has been a continuous postponement of anticipated
rate cuts early in 2026.
Prediction markets such as Kalshi are becoming popular because they offer
real-money trading combined with crowd-sourced predictions. Although not
foolproof, these markets are often quicker than traditional surveys at picking
up changes in sentiment.
What This Means for Stocks, Crypto,
and Consumers
Investors should take heed and not expect any immediate relief in
interest rates. The equities market might experience volatility as it adapts to
an environment where interest rates are expected to remain high for long
periods; this effect could be more pronounced on real estate and technology
sectors which are highly sensitive to interest rate changes.
Crypto markets are also watching closely. Although digital assets tend to
do well when monetary policy is loose, deferring rate cuts may maintain some
level of tightness in liquidity over the short run.
Could the Odds Change?
Yes, but only if there is a significant change in data. A sudden slowdown
in hiring, an unforeseen drop in inflation or unanticipated financial strains
could make the Federal Reserve change its current stance. Until then, traders
expect policymakers to be patient.