Traders abandon the December hold as Waller talks of a bigger hike

A hawkish Fed governor and a hot October CPI have pushed the no-change bet down to 4%.

In one line: A December hold is probably even less likely than its 4% price, with sibling contracts putting a quarter-point rise at 86% for the 9 Dec meeting.

Christopher Waller, a Federal Reserve governor, put a half-point rate rise on the table on 10 Nov, fxstreet reported. The same day the New York Times reported that October's Consumer Price Index showed a broadening of price pressures that put the Fed's control of inflation in doubt.

Polymarket's contract on no change at the December meeting trades at 4%. It pays if the upper bound of the federal funds range is unchanged, and it resolves on 9 Dec. Traders cut it 19 points over the 7 days from 23% on 4 Nov, and 32 points from its high of 36% on 6 Nov. The venue puts the drop in the last 24 hours at 14.8 points. The other contracts in the event price the size of a move in basis points, hundredths of a percentage point: a 25-point rise at 86%, 50 or more at 10%, and both cuts at 0%.

Waller named the bigger move, yet traders give it one chance in ten. That reading holds up. Waller is one voice on the Fed's rate-setting committee, and his colleagues must still be won over. Floating a larger step can also make a smaller one easier for colleagues to back.

Traders price a hold at 4%, and that price probably still overstates the chance the committee stands pat on 9 Dec. The best case for a pause is the week's own swing: the contract stood at 36% on 6 Nov, and softer news before the meeting could bring a hold back into view. A no-change price back above 20% before 9 Dec would show that case gaining ground, and an unchanged upper bound on 9 Dec would prove the call wrong. A December rise would bear on borrowing costs for homebuyers, and ITB, the homebuilder fund, fell 2.12% on 10 Nov as Waller spoke, a sign that rate-sensitive shares could stay under strain into the meeting.

Sources