• Prediction markets now price a 35% chance of a Federal Reserve rate hike before 2027, up sharply from subdued levels.
  • The move follows hotter-than-expected inflation data, reigniting debate over how long rates will stay elevated.
  • Traders are closely watching upcoming CPI and payroll reports for further direction.

Rate-Hike Bets Surge

The probability of a Federal Reserve rate hike before 2027 has jumped to 35% on Kalshi, a prediction market platform, according to recent data. The shift comes after weeks of relatively muted expectations, driven by a string of hotter-than-expected inflation prints and lingering uncertainty about the path of monetary policy.

“The market is repricing as data surprises to the upside,” said a trader familiar with the positions, speaking on condition of anonymity. “People are starting to ask if the next move might be up, not down.”

The odds had languished in the low teens as recently as last month, but a series of CPI and PCE readings that exceeded forecasts have forced a reassessment. The Federal Reserve has maintained a data-dependent stance, emphasizing that policy decisions will hinge on incoming economic data rather than a preset course.

Inflation Persistence Fuels Uncertainty

Despite the Fed’s preferred inflation gauge—core PCE—still running above the 2% target, labor markets remain resilient, with jobless claims hovering near historic lows. This combination has kept the door open to further tightening, even as many economists had expected a pivot to cuts later this year.

“The market is now pricing in a non-trivial chance of a hike, which reflects the reality that inflation is proving stubborn,” said a former Fed staffer. “If we get another couple of hot prints, those odds could easily push higher.”

The Kalshi contract, which settles on whether the Fed raises rates before January 2027, saw a spike in volume following the latest inflation release, suggesting heightened attention from both retail and institutional participants.

Implications for Markets

The rising probability of a rate hike has injected fresh volatility into bond and equity markets. Treasury yields have crept higher, and rate-sensitive sectors such as real estate and utilities have underperformed. The dollar index has strengthened, reflecting expectations of tighter U.S. monetary policy relative to other major economies.

Looking ahead, traders will be parsing the next round of CPI data, due mid-month, and the monthly jobs report for further clues. A miss on the downside could quickly reverse the recent trend, while another upside surprise might push odds toward 50% or higher.

Correction: An earlier version of this article misstated the contract expiration. It is January 2027, not January 2026.