No shutdown this year after all
By Xavier Charles Sottile- Odds of a shutdown this year collapse
- Lower inflation moves chance of a cut closer, boosts equities
Inflation Report
Inflation comes in cool, boosting stocks
Inflation in October came in below Kalshi’s expectation of 0.08%, changing 0.0%. The Consumer Price Index actually fell a very small amount. This was chiefly driven by the fall in gas prices that we’ve been covering here, with gas prices this week at $3.33 today compared to $3.584 a month ago. Core inflation came in under Kalshi’s expectation of 0.3% to 0.2%. In November, Kalshi traders project headline inflation to be a similarly low 0.10%, and core inflation 0.32%; year-over-year, this would be still well over the Fed’s supposed 2% target at 3.07% headline and 4.01% core this month.
Expectations for 2023 inflation in total are now near their end, with headline 2023 inflation expected to come in at 3.19% and core 2023 inflation to come in higher at 3.78%.
2023 US annual inflation is forecasted to be 3.19%
November inflation is expected to be 3.07%
Government Shutdown Report
Shutdown deferred until January
Last week, the odds of a shutdown this weekend were one-in-three, with odds of a shutdown anytime this year one-in-two, as markets predicted Congress would kick the can to December. However, earlier this week that flipped, and as of today, both chambers have passed a bill to fund the government into mid-January, giving more time for Congress to find a long-term solution. Odds quickly fell to zero, as shown in the charts below.
Odds of a shutdown at any time this year 1%
Fed Fund Rate Report
No hike expected until a cut next summer
The low inflation print resulted in Kalshi traders moving up their guess of when the Fed will cut from next July to next June. This is the second month in a row that this date has moved up, with traders originally projecting a cut next July after last month’s meeting, and one next September before that. Chances of a hike in December have finally died off to 2%, with no more hikes expected at all. This would represent the longest that the Fed has stayed at non-zero rates since the year between rate hikes between December 2015 and December 2016. Kalshi traders nonetheless project a high probability (92%) of the Fed cutting rates by the end of next year, up from 87% last week.
The probability of a rate cut by the end of 2024 - 92%
About the Kalshi Whisper
The “whisper” number is a private, unofficial number that is circulated by bank analysts to their clients, including high net-worth individuals, Wall Street traders and hedge funds during the blackout period after the official consensus is published and before data is released. Analysts and economists at banks continue to revise their estimates during the blackout period, but share their new forecasts with a limited clientele. They call these late forecasts “whispers” because they’re not public and not broadly accessible. Kalshi forecasts serve as a more accessible market-driven “whisper” during the blackout period, before the release tomorrow.
The Kalshi Whisper comes from market prices based on CPI, core CPI, target fed funds markets and other relevant Kalshi markets. Markets are purely directional: traders purchase binary contracts on a central-limit order book that pay out based on conditions such as “CPI inflation exceeds 0.2% in November 2022”. From these contracts, one can simply extract the probability of any given release. For example, the probability of CPI inflation equaling 0.2% is equal to the price that CPI inflation exceeds 0.1% subtracted by the price of CPI inflation exceeding 0.2%. Current projections are based on the last traded price for contracts. Federal funds rate projections come from binary markets that pay out on the basis of the upper bound of the Federal Funds target range.
Kalshi markets have a history of accuracy. The median Fed projections have correctly identified the size of the rate hike for each meeting since the first Kalshi Fed projection in July 2021. The median CPI forecasts have been equally accurate or more accurate than the Bloomberg economist survey and the Cleveland Fed Nowcast in 11 of the last 13 months.
Disclaimers
This communication is provided for information purposes only. Please read Kalshi research reports related to its contents for more information, including important disclosures.
This communication has been prepared based upon information, including market prices, data, and other information, from sources believed to be reliable, but Kalshi does not warrant its completeness or accuracy except with respect to any disclosures relative to Kalshi and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication.
The opinions and estimates described herein constitute a reasonable judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Kalshi’s research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, Kalshi may be restricted from updating information contained in this communication for regulatory or other reasons.
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