At the time of this writing, Kalshi market is giving an 82% chance the Federal Reserve does nothing in January—no rate cut.

That price is high for a reason. The Fed is caught between two conflicting pressures: inflation that's still above target, and an economy that's starting to show cracks under the weight of high rates. The market is pricing in paralysis.

Economists keep saying inflation is cooling. But as analyst Jim Bianco points out, they see inflation differently than normal people do.

Economists look at year-over-year CPI. You look at your grocery bill. The 5-year cumulative CPI shows the real story: prices are up massively since 2020, and they aren't coming back down. This is the affordability crisis people feel every day.

Core PCE—the Fed's preferred inflation measure—is still running around 2.8-3%, well above the 2% target.

Employment costs are rising significantly, and energy costs are creeping back up.

And it's not just a US problem.

Globally, the cheap labor that kept inflation low for decades is disappearing. China's manufacturing wages have exploded from near-zero in 1990 to $8/hour today, while other Asian countries remain at $1-2/hour.

The era of offshoring to China for cheap production is over, and guess who’s stuck with the costs?

Maybe, but before you think it’s a slam dunk you have to ask why not just hold rates high indefinitely?

Look, the economy is starting to crack. (no matter what anyone says).

The working-age population is shrinking in 50 countries, a massive long-term headwind for growth.

The job market is showing signs of weakness, and some are warning it could get much worse without rate cuts.

And high interest rates are blowing up the government deficit. The more the government spends, the more it fuels inflation, creating a vicious cycle.

The Fed is trying to engineer a soft landing, slowing the economy without crashing it. But they’re running out of time. Maybe they’ll slash rates anyway.

But will they do it in January?

The market at 82% for "no cut" seems pretty accurate. The Fed's most likely move on January 28, 2026 is to do nothing.

If that holds, it means no relief for the affordability crisis, continued pressure on the job market, and a worsening deficit problem.

If the Fed surprises with a cut, it means they're prioritizing growth over inflation—a major policy shift that would ripple through every asset class.

The 18% chance of a 25bps cut reflects the uncertainty. November CPI came in softer than expected, and some see that as opening the door.

But with Core PCE still above 2.8%, the base case remains: hold and wait.

However…

There's one near-term risk the market may be underweighting.

President Donald Trump is widely expected to announce his choice for the next Federal Reserve Chair during the week of January 6.
Well talk about that in a separate post.

And that could change everything.

_{___________________________________________________________________}

_DISCLAIMER:

_{The Content is not intended to provide, and does not constitute, financial, investment, trading, tax, legal, or any other form of professional advice. It is not a recommendation, suggestion, solicitation, or offer to buy, sell, trade, or hold any securities, event contracts, derivatives, cryptocurrencies, or other financial instruments on platforms such as Polymarket, Kalshi, or any other prediction market.}

_{Prediction Market Edge believes the Content is reliable but makes no representations or warranties as to its accuracy, completeness, timeliness, or suitability for any purpose. The Content is subject to change without notice, and Prediction Market Edge assumes no duty or obligation to update it.}

_{Trading in prediction markets involves significant risk of loss, including the potential loss of your entire investment. Past performance (including any highlighted “wins” or gains) is not indicative of future results. Markets are volatile, influenced by news, liquidity, resolution rules, and other factors, and individual results will vary. Subscribers and readers should conduct their own independent research, consider their financial situation, risk tolerance, and objectives, and consult qualified professionals before making any trading or investment decisions.}

_{Prediction Market Edge is not responsible for any third-party information, market data, platform rules, or services referenced herein, including but not limited to Polymarket, Kalshi, or other exchanges. Use of the Content is at your own risk.}

_{By subscribing to or accessing this Newsletter or related materials, you agree that Prediction Market Edge and its affiliates shall not be liable for any direct, indirect, incidental, consequential, or other damages arising from your use of the Content.}

_{For important additional information, please review our full Terms of Service, Privacy Policy, and any Subscription Agreement (available on predictionmarketedge.com).}