Traders trim the odds of a December Fed hike

Oil fell on bets the Republican midterm loss brings an Iran war exit, and hike bets followed.

In one line: The Fed leaves rates unchanged in December as oil falls on bets of an Iran war exit, an outcome the 32% hold price underrates.

Forexlive reported on 5 November that oil prices tumbled as the Republicans' midterm loss sparked bets on an exit from the Iran war. The same day the Bank of England raised its Bank Rate to 4.00% in a 9-0 vote. The New York Times called it the bank's first rise in more than three years and reported its warning that inflation would climb to about 5% next year.

Polymarket's contract on a December rise of 25 basis points, a quarter of a percentage point, trades at 66%. That is 12 points lower than 24 hours earlier. It peaked at 83% on 4 November and has fallen 18 points since that high. Over the 7 days it is down 5 points, from 70% to 65%. The contract for a hold, meaning no change, stands at 32%, and every other outcome sits at 1%. Kalshi prices the same question at 65% for a hike and 35% for a hold, so two independent books agree on about two in three.

The fall rests on one bet: that the Republican loss shortens the war and drags oil down with it. That bet has company. Goldman Sachs expects the Fed to cut in December and March 2027, cryptonews reported on 5 November. The book gives a December cut only 1%, but a large bank forecasting easing makes the 83% hike price of 4 November look like the war premium at its peak.

The case for a hike has not gone away. Citi said worries that the White House could escalate with Iran persisted after the vote, and devdiscourse reported energy prices heading higher again as the euro eased. The Bank of England faced the same war-driven prices and chose to tighten unanimously.

The Fed holds its upper bound unchanged at the December meeting, and at 66% the market still overrates the hike. The call is wrong if the decision, which the contract settles on 9 December, raises the rate by 25 basis points. Another reading is that Iran-driven energy prices push the Fed into one last rise, as they pushed the Bank of England, and that reading wins if both venues price the hike above 75% before the meeting. A hold would show the Fed judging the war's price shock too brief to meet with dearer money.

Sources