The September Fed rate hike, it turns out, was never really off the table. Yahoo Finance reported that CME FedWatch placed the probability of a 25-basis-point increase at approximately 70.2% on Wednesday, which would lift the federal funds target range from 3.5%–3.75% to 3.75%–4%. The consensus narrative is that this repricing represents a hawkish awakening. The more uncomfortable read is what it reveals about the month that preceded it.
A Month-Long Round Trip in September Fed Rate Hike Odds
The numbers, taken directly from CME FedWatch, are almost comical in their symmetry. The probability of a September Fed rate hike stood at 67.0% a month ago. It fell to 39.6% a week ago. It has since recovered to 66.2%. That is not a market digesting new information in an orderly fashion. That is a market that briefly convinced itself a persistent inflation problem had become a transient one, then was reminded it had not.
Welcome back to the reality that inflation is a problem, as Mike Shedlock put it on MishTalk. The phrasing is casual; the implication is not. A probability swing of nearly 27 percentage points in a single week, only to reverse almost entirely, suggests the market’s conviction in either direction has been thin. Pricing in a pause was never well-supported. It was, at best, a hope dressed as a forecast.
The Fed will announce its decision following a two-day meeting on 15–16 September. That calendar constraint matters, because it is not the September meeting that carries the more politically loaded question.
Why the October Double-Hike Probability Deserves More Scrutiny
The two-hike scenario (a September move followed by another in October) has also completed its own round trip. The probability of back-to-back hikes in September and October sits at 19.1% today, compared with 9.7% a week ago and 20.8% a month ago. The pattern is identical: a collapse in conviction, followed by a partial recovery.
The October meeting, however, presents a problem that has nothing to do with the data. An October hike would land just six days before the midterm elections on 3 November. The Fed’s institutional instinct is to avoid any action that can be read, however unfairly, as political interference in the weeks immediately surrounding an election. That consideration does not appear in any inflation model. It is a real constraint nonetheless, and it is one reason the two-hike odds, even at 19.1%, may be overstated.
The more plausible read is that the Fed, if it moves in September, uses that meeting to do what is necessary and then goes quiet ahead of the election. A September hike is the path of least political resistance precisely because it provides cover before the campaign noise reaches its peak.
What the Prediction Markets Add to the Picture
CME FedWatch is not the only gauge worth watching. According to the prediction market on Thursday morning, a 25-basis-point hike carried a 53% probability on Kalshi, while the Fed keeping rates unchanged had a 46% probability. That is a far narrower margin than the CME tool implies, which is itself a data point. Prediction markets aggregate a different kind of participant to futures markets, and when the two diverge materially, it is worth asking which crowd is better informed about the non-economic variables (political timing, Fed communication signals, the composition of the committee) that futures traders may be underweighting.
The context behind those probabilities is straightforward. At its previous meeting in July, the central bank held rates at 3.5%–3.75% but acknowledged that inflation remained above its 2% objective. That acknowledgement left September’s meeting with essentially no cover for a pause. The July statement made the case for action; the subsequent data did not contradict it. The month-long dip in hike odds looks, in retrospect, like thesis fatigue rather than genuine reassessment.
The Federal Reserve‘s two-day meeting on 15–16 September will settle the September question. The October question, shaped as much by the electoral calendar as by any CPI print, may prove the more revealing test of how far the Fed’s stated independence extends when the political calendar closes in.
