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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Recent updates
Missouri AG Sends Cease-and-Desist Letters to Six Prediction Market Operators
Missouri AG Catherine Hanaway issued cease-and-desist letters on September 18 to Kalshi, Polymarket, Robinhood, Crypto.com, Novig, and Underdog — the broadest single-state enforcement sweep yet. The letters give platforms 30 days to comply or obtain state gambling licences. Missouri alleges sports event contracts are unlicensed sports wagering. One day earlier, Montana agreed to pause its own Kalshi enforcement pending the Ninth Circuit en banc process.
Yahoo Finance Ends Polymarket Data Partnership After Five Months
Yahoo Finance and Polymarket ended their exclusive prediction market data partnership on September 18, five months after announcing it in November 2025. The dedicated Polymarket hub on Yahoo Finance was taken down in April 2026 after a two-month run. No reason disclosed. Yahoo Finance retains an advertising relationship with Polymarket. The partnership's failure is a setback for Polymarket's mainstream financial media distribution strategy.
Montana and Kalshi Reach Joint Stipulation — State Pauses Enforcement Pending Ninth Circuit En Banc
Kalshi dismissed its lawsuit against Montana on September 17 after both parties filed a joint stipulation in which Montana agreed to pause all enforcement pending the outcome of Kalshi's en banc petition at the Ninth Circuit. Montana must give 30 days notice before resuming once the en banc window closes. The agreement mirrors the Robinhood-Michigan stipulation of September 4 and reflects a pattern of negotiated appellate-linked pauses.