Shutdown expected to last 2 weeks
By Xavier Charles Sottile- Markets have Fed 50/50 on one more hike this year
- Inflation expected to jump some
- Major economic data expected to be delayed
Government Shutdown Report
Shutdown overwhelmingly likely; and expected to be a long one
Kalshi’s traders are currently pricing in a 90% chance of a government shutdown beginning October 1. Should this happen, major economic data will likely be delayed. Our markets currently expect only a 28% chance that September's inflation data will be released on time, and a 24% chance that September’s jobs report will be released on time.
The shutdown is expected to last 13 days
Growth Report
GDP growth expected to be strong
Kalshi traders project 147,749 new jobs to be added in September, slightly down from a month ago. The GDP Nowcast projection for Q3 has fallen from its dramatic 5.9% to a still quite dramatic 4.9%. Kalshi’s estimate is high, but not that high, at 3.37%. Regardless, it appears to be a banner third quarter.
GDP growth in Q3 is expected to be 3.37%
Inflation Report
Headline inflation remains slightly elevated, but core still low
Traders project headline inflation in September to be 0.34% month-over-month, much lower than August’s 0.6% but still above the Fed’s target. Average gasoline prices are stubbornly high, averaging nearly $4 ($3.837) this week compared to $3.20 at the beginning of the year. Appropriately, core inflation is expected to make a much smaller gain, moving up to 0.25% in September, on par with last month’s 0.3%. Expected annual headline inflation is 3.41%, slightly lower than estimates from last month.
2023 US annual inflation is forecasted to be 3.41%
September headline inflation is forecasted to be 3.56% year-over-year
Fed Fund Rate Report
Stability expected: 50/50 of one more hike this year
Kalshi markets project the Federal Reserve to stand pat at the November meeting, with a 20% chance of hiking. Traders have moved the chance of a rate cut – at one point over 50% this year – to its lowest yet at 4%. By year end, Kalshi trades expect slightly less than 50% chance of another rate hike. However, odds of a cut by the end of next year are an extremely high 89%.
CME’s FedWatch tool has a slightly higher probability of a hike in November (17.2%) and a lower probability of another hike by year-end (34.6%).
Probability of a 25 bp hike in November is 16%
Probability of the target rate range being at least 25bp higher at year-end is 42%
The probability of a rate cut in 2023 is 3%
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
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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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