Traders still back an October Fed hold, with a hike in December

Polymarket prices a hold at 81% and a 25-basis-point hike at 20%, with Kalshi at 80%.

In one line: The Fed keeps rates unchanged on 29 Oct. The 81% hold price underrates that, and a hike announced that day would prove it wrong.

High interest rates are doing little to cool investment in artificial-intelligence infrastructure, the New York Times reported on 5 Oct, and that investment is feeding inflation. Rising borrowing costs are hurting households and businesses, the paper found, yet the AI boom carries on. That is the case for a Federal Reserve that keeps tightening.

Traders still expect the Fed to hold rates at its decision on 29 Oct. The Polymarket contract on no change trades at 81%, up 50 points over the 7 days from 31% on 29 Sep. It peaked at 87% on 2 Oct and has fallen 6 points since then, 3.0 of them in the last 24 hours. The only other outcome with a price is a 25-basis-point hike, at 20%. A basis point is a hundredth of a percentage point. Every cut and any larger hike sit at 0%. Kalshi prices the hold at 80% and the hike at 20%, so two separate books agree.

The Times report and the price differ only on timing. The December contracts price a 25-point hike at 75% and a hold at 23%. Traders read the inflation pressure the Times describes as a case for raising rates before the year is out, not this month. The slide since 2 Oct fits a market weighing that pressure. Even so, a hike needs a reason to come forward a meeting, and the reporting gives none.

The Fed leaves the upper bound of its target range unchanged on 29 Oct, and the 81% price still underrates that outcome. The best case against is that AI spending keeps inflation hot enough for a committee already leaning towards December to move early. An inflation reading that surprises upward before the meeting would make it right. The call fails if the Federal Open Market Committee statement on 29 Oct announces a rise, or if the October hike contract climbs above 40% before then. A hold keeps borrowing costs for households and businesses where they are for at least another round.

Sources