Market: Fed Decision in October — 25 bp increase
Market probability: 51%
ProbGap forecast: 61%
Gap: +10 percentage points
The Federal Reserve just raised rates for the first time in more than three years.
Now the market is asking a harder question:
Will the Fed hike again just six weeks later?
Prediction markets currently put the probability of another 25 basis-point increase at roughly 51%.
Our estimate is higher.
ProbGap: 61%.
That leaves a +10 percentage-point gap between our forecast and the market.
The market has moved — fast
This isn't a market that has ignored the news.
Quite the opposite.
According to Reuters, market pricing for an October hike has jumped from roughly 27% a week ago to around 53% following the September Fed meeting.
Polymarket currently sits at approximately 51%.
The market has therefore moved from treating an October hike as relatively unlikely to essentially a coin flip.
We think there may still be some room left.
What changed?
On September 16, the Federal Reserve unanimously raised the federal funds target range by 25 basis points to 3.75%–4.00%.
The accompanying statement remained firmly focused on inflation.
The Fed described economic activity as expanding at a solid pace, domestic spending as resilient and inflation as still elevated.
More importantly, the new projections indicate that a strong majority of policymakers expect additional tightening during 2026.
That doesn't tell us exactly when the next hike comes.
But it materially changes the starting point for October.
Wall Street is changing its view too
Goldman Sachs has now changed its Fed forecast and expects another 25 bp hike in October.
That is significant because Goldman previously expected the September move to mark the end of the tightening cycle.
Bank of America is even more hawkish, forecasting increases in both October and December.
Forecasts from individual banks aren't enough to determine our probability.
But the direction of the revisions matters.
The Fed has delivered a hike.
Its communication remains inflation-focused.
Policymakers still see additional tightening as appropriate.
And professional forecasts are moving toward an earlier second hike.
Why we're at 61%
There is an important distinction between:
“The Fed will probably hike again this year.”
and:
“The Fed will hike at the October meeting.”
The September projections provide considerably stronger evidence for the first statement than the second.
December remains another opportunity to tighten.
There will also be additional inflation, employment and activity data before the October 27–28 meeting.
That uncertainty prevents us from pushing the probability dramatically higher.
But given the September decision, the Fed's language, the updated rate projections and the shift in external forecasts, we think October is now somewhat more likely than current prediction-market pricing implies.
Our estimate:
61% probability of a 25 bp increase in October.
Current prediction-market probability:
51%.
ProbGap
Market: 51%
Forecast: 61%
Gap: +10 pp
Signal: The market may still be slightly underpricing another October hike.
What could close the gap?
This forecast is highly data-dependent.
A softer inflation print, deterioration in employment or a meaningful weakening in consumer activity could quickly strengthen the case for waiting until December.
The opposite is also true.
Another round of persistent inflation and resilient economic data would make consecutive September–October hikes increasingly plausible.
That makes this market particularly interesting to track.
The market has already moved from roughly 27% to above 50%.
The question now is whether it stops here.
Our forecast says it probably shouldn't.
ProbGap tracks gaps between prediction-market probabilities and independent forecasts. Forecasts are probabilistic estimates, not certainties or financial advice.
Sources: Federal Reserve — September FOMC statement · Federal Reserve — September projections · Polymarket — Fed Decision in October. Reuters reports CME pricing at 53.1% and Goldman's revised October call.