Elnur_ / depositphotos
The kalshi whisper is that the federal reserve will hike rates by 25 bps to 4.50-4.75% at their February 1 meeting, with 97% confidence. That projection represents a substantial change from earlier this month: markets projected a 50% chance of a 50 bps hike early in January.
Those probabilities fell to 25% after the December jobs report was released on January 6, and down 10% after the December inflation report was released on January 12.
Get The Full Series in PDF
Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.
q4 2022 hedge fund letters, conferences and more Gates Capital Management Reduces Risk After Rare Down Year [Exclusive]
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for read more
Table of Contents show
fed decisions over the course of 2023
inflation to skyrocket, core to remain steady
around the markets
Fed Decisions Over The Course Of 2023
brisk 2022 q4 gdp report
global monetary decisions
quick tour around the rest of the economy
Markets are similarly confident (89% probability) that the Fed will hike rates by 25 bps again at their March 23 meeting, bringing the target federal funds range up to 4.75-5.00%. Markets are still torn as to whether that is the end of the hiking cycle. Markets give roughly a 55% chance that the terminal rate will be 4.75-5.00%, with a ~20% chance of 5.00-5.25% and a ~10% chance of 5.25-5.50%.
Inflation To Skyrocket, Core To Remain Steady
While there is little uncertainty at the February meeting, those later Fed decisions will likely depend on the expected future path of inflation . Kalshi markets project 0.4% month-over-month inflation in January (far above December's -0.1%) with a stable 0.3% month-over-month core inflation (core inflation refers to inflation excluding the volatile food and energy).
These projections have ticked upwards, as Kalshi markets were projecting 0.2% headline and 0.2% core at the start of the month.
Around The Markets
Brisk 2022 Q4 GDP Report
Kalshi projects that US GDP will grow by roughly 2.7% in 2022 Q4. There are even some substantial upside possibilities, with a roughly 35% chance that the growth rate could top 3.0% and a roughly 17% chance could top 3.5%.
Global Monetary Decisions
The Federal Reserve is hardly the only monetary policy body making its decision in early February. The bank of england will release its bank policy rate decision on February 2, where Kalshi markets project a 50 bps hike from 3.50% to 4.00%. Likewise, Kalshi projects the European Central Bank to hike their main refinancing rates 50 bps from 2.50% to 3.00% on February 2.
Quick Tour Around The Rest Of The Economy
The Bureau of Labor Statistics will release their January jobs numbers on Friday, February 3. Kalshi markets project that the US economy will produce roughly 200,000 jobs.
About the Kalshi Whisper
The“whisper” number is a private, unofficial number that is circulated by bank analysts to their clients, including high net-worth individuals, Wall Street traders and hedge funds during the blackout period after the official consensus is published and before data is released.
Analysts and economists at banks continue to revise their estimates during the blackout period, but share their new forecasts with a limited clientele. They call these late forecasts“whispers” because they're not public and not broadly accessible. Kalshi forecasts serve as a more accessible market-driven“whisper” during the blackout period, before the release tomorrow.
The Kalshi Whisper comes from market prices based on CPI, core CPI and target fed funds markets. Markets are purely directional: traders purchase binary contracts on a central-limit order book that pay out based on conditions such as“CPI inflation exceeds 0.2% in November 2022”.
From these contracts, one can simply extract the probability of any given release. For example, the probability of CPI inflation equaling 0.2% is equal to the price that CPI inflation exceeds 0.1% subtracted by the price of CPI inflation exceeding 0.2%.
Projections for a given day are based on a volume-weighted average of prices paid for that day. Federal funds rate projections come from binary markets that pay out on the basis of the upper bound of the Federal Funds target range.
Kalshi markets have a history of accuracy. The median Fed projections have correctly identified the size of the rate hike for each meeting since the first Kalshi Fed projection in July 2021. The median CPI forecasts have been equally accurate or more accurate than the Bloomberg economist survey and the Cleveland Fed Nowcast in 10 of the last 12 months.