Fed Hikes 25bp for First Time Since 2023 — Prediction Markets Priced It at 81% vs CME Futures at 64%
The Federal Reserve raised rates 25bp to 3.75%-4% on September 16 — unanimous 12-0 vote — after core inflation beat expectations in August. Fed Chair Warsh said inflation remains too high. Sixteen of 18 officials expect at least one more hike. Prediction markets on Kalshi had priced the hike at 81%; CME fed funds futures implied 64%. Prediction markets were right, and led CME's pricing by days throughout the forecasting window.
The Federal Open Market Committee voted 12-0 on September 16 to raise the federal funds rate 25 basis points to 3.75%-4.00% — the first rate increase since the 2023 tightening cycle. Fed Chair Kevin Warsh said inflation 'remains elevated.' The dot plot showed 16 of 18 officials expect at least one more hike before year-end. Going into the decision, Kalshi's prediction market priced the hike at 81%; CME fed funds futures implied 64%. The 17-point gap reflects a recurring 2026 pattern: Kalshi had priced higher hike probabilities than CME throughout the forecasting window, starting in July when CME was at 26% and Kalshi at 47%.
For UK readers, the equivalent comparison would be prediction markets versus SONIA overnight index swaps for Bank of England rate decisions. The MPC's August 2026 decision to hold at 4.75% was priced at 68% by SONIA markets and at 74% by prediction markets; prediction markets were correct. The methodology question is whether prediction markets strip out hedging demand that biases futures-implied probabilities, or whether their participant base genuinely holds better information. Academic evidence from 2024-2026 studies of Kalshi's Fed decision markets suggests both effects are present: hedging demand in fed funds futures creates a measurable upward bias in implied hike probabilities under some conditions, but Kalshi's participant base also includes active-manager economists and macro hedge fund traders who update their views faster than institutional futures positioning can adjust.
The 12-0 vote is notable. A unanimous FOMC decision signals broader consensus than the contested 7-5 split that preceded the last hike in 2023. Warsh's comment that 'inflation remains elevated, driven in part by energy prices' puts the Fed's assessment on record: this is not a one-meeting technical adjustment but a policy pivot back toward tightening. The dot plot's 16/18 expectation of at least one more hike before year-end gives prediction markets a direct mandate: the market probability of a November or December 2026 hike should be well above 50% immediately following this decision. Kalshi's forward markets for those meetings will be among the most actively traded economic prediction markets over the coming weeks.
The next FOMC meeting (October 28-29) falls in an unusually dense prediction market window: NFL Week 8, the final week before the November 3 midterm elections, and one week before Kalshi's and Polymarket's peak political market volumes. Fed decision markets, election markets, and sports contracts will all be active simultaneously. The commercial and informational value of prediction markets aggregating probability signals across all three categories simultaneously — and doing it with fewer institutional hedging distortions than traditional financial markets — is the strongest available argument for the sector's broader utility beyond sports wagering.
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Utah Files Felony Charges Against Kalshi and Its Founders — Second State to Criminally Charge a Platform
Utah filed criminal charges against Kalshi and its two co-founders, Tarek Mansour and Luana Lopes Lara, on October 28 — 13 felonies and a misdemeanour, including a second-degree 'pattern of unlawful criminal activity' count and 12 counts of online gambling promotion. The charges stem from a September sting in which an undercover agent placed 12 sports wagers verified to be in Utah. The CFTC sued Utah the day before to block state enforcement, its tenth such suit. Utah is the second state after Arizona to criminally charge Kalshi, and the first to charge the founders personally. Kalshi called it a 'crazy overreach.'
NBA Names Kalshi and Polymarket Preferred Exchanges — Leaving the NFL Alone in Opposition
The NBA announced on October 26 that it has named Kalshi and Polymarket its 'preferred prediction market exchanges,' signed a non-binding memorandum of understanding with the CFTC on basketball integrity, and expanded its DraftKings deal to include prediction markets — the first league to extend a sportsbook partnership into the category. The exchange deals bar league and team personnel from trading NBA contracts, limit permissible markets, and require sharing suspicious-trading data, in exchange for NBA intellectual property and official data. The NBA joins MLB, the NHL, and MLS as partnered leagues, leaving the NFL as the lone major holdout — and the only league fighting the platforms in court.
CFTC Chair Says Agency Is Watching Prediction Markets for Manipulation Ahead of Midterms
CFTC Chairman Michael Selig said on October 23 that the agency is closely monitoring prediction markets for manipulation ahead of the November 3 midterms, and that it is separately scrutinising oil market trading tied to President Trump's announcements about the war in Iran. Combined midterm open interest on Kalshi and Polymarket stood at $250 million as of October 18, with Kalshi holding 84%. Selig acknowledged the agency often catches political figures trading 'oftentimes after the fact.' The remarks highlight the CFTC's dual role as both the platforms' federal protector and their manipulation watchdog.