Market: 53%
ProbGap: 61%
Gap: +8 percentage points
Previous market at publication: 51%
The market is moving back toward our October Fed forecast.
Polymarket now prices a 25-basis-point rate increase at 53%, versus 47% for no change.
ProbGap remains at 61%.
That leaves an 8 percentage-point gap — smaller than when the market briefly fell below 50%, but still large enough to keep the forecast interesting.
The new information is hawkish
The move follows another round of hawkish signals from Federal Reserve officials.
St. Louis Fed President Alberto Musalem said Monday that additional rate increases are likely to be needed to bring inflation under control.
More importantly, he argued that acting earlier and incrementally would be preferable to waiting and potentially having to tighten more aggressively later.
Musalem also described the current 3.75–4.00% policy rate as still on the accommodative side.
His reasoning goes beyond the recent energy shock.
He sees inflation pressure coming from both supply constraints and resilient domestic demand, while underlying inflation remains too high.
The Fed's own projections point higher
The September FOMC projections provide another reason not to dismiss an October hike.
After last week's 25 bp increase, the target range stands at 3.75–4.00%.
The median FOMC projection for the federal funds rate at the end of 2026 is 4.1%.
That is consistent with another quarter-point increase before year-end, although importantly it does not tell us whether that move comes in October or at a later meeting.
That timing question is exactly what this prediction market is pricing.
Market 53%. ProbGap 61%.
When we published PG-0006, the market stood at approximately 51%.
It subsequently slipped below 50%.
Now it has moved back to 53%.
Our forecast remains:
25 bp increase in October: 61%
Market: 53%
ProbGap gap: +8 pp
We are not revising the forecast today.
The latest information is broadly consistent with the reasoning behind our original estimate: inflation remains uncomfortable, policymakers are increasingly discussing persistent demand pressure, and the Fed's projected policy path still points toward additional tightening.
But the gap has narrowed.
That's exactly what we want to track.
A forecast is not interesting because it disagrees with the market forever.
It's interesting because we can observe what happens to that disagreement as new information arrives.
For PG-0006, the market has moved a little closer to us.
Now we wait for the next major data.