Tools chosen: kalshi_direct kalshi_related polymarket_related fred claude_news code_execution

Sub-questions (Fermi decomposition)

Planner reasoning

This asks whether the Fed will hike rates by more than 25bps at the December 2027 meeting — a rare, large-magnitude move that would require a significant inflation shock. Base rates for >25bps hikes are extremely low outside crisis conditions. The market price is the primary anchor, supplemented by current rate trajectory and inflation data.

# Current state The question resolves Yes only if the Fed executes a single-meeting rate hike exceeding 25bps at the December 8, 2027 FOMC meeting. As of July 2026, the Fed is holding at 3.63% (3.50–3.75% target range) in a post-hiking pause, with markets pricing modest normalization over the next 18 months — not a return to emergency-scale hikes. # Timeline of key events - **2022-12-14** [confirmed] Last (and only) December >25bps hike in history: +50bps - **2024** [confirmed] Fed began cutting cycle from peak ~5.25–5.50% - **2026-04-29** [confirmed] FOMC holds; minutes flag risk of tariff/energy-driven inflation de-anchoring [Fed.gov] - **2026-06-17** [confirmed] Kevin Warsh's first FOMC meeting; unanimous hold at 3.50–3.75%; hawkish language shift (removed easing bias) [CNBC] - **2026-06-17** [confirmed] June dot plot: median end-2027 rate = 3.50–3.75% (current); PCE forecast revised up to 3.3% for 2027; 5 dots at 3.75–4.00% for end-2027 [BondSavvy, TradingKey] - **2026-07-06** [confirmed] Effective fed funds rate: 3.63%; 10-year breakeven inflation: 2.24%; unemployment: 4.2% [FRED] --- # Event Will the Fed hike rates by >25bps at the December 8, 2027 FOMC meeting? # Outcomes to forecast - **Yes**: Fed announces >25bps hike on Dec 8, 2027 - **No**: Any other action (hold, ≤25bps hike, cut) # Kalshi market anchor **Current YES price: 1.00%** (KXFEDDECISION-27DEC-H26) - 7-day change: flat; 30-day change: **−10pp** (was at 11–13%, collapsed) - Avg daily volume: 17 contracts; price range over data history: 1–13% - Related market: Jan 2028 >25bps hike at **11%** — notably higher, suggesting market sees Dec 2027 as particularly unlikely entry point # Sub-question answers 1. **Kalshi price for >25bps hike at Dec 2027?** — 1.00% YES, down sharply from ~11–13% range within last 30 days [Kalshi direct] 2. **Current fed funds rate and policy direction?** — 3.63% effective rate (3.50–3.75% target); policy in hawkish hold post-cuts, easing bias removed but no active hiking [FRED, CNBC] 3. **Inflation trajectory?** — CPI rising modestly (333.98 in May 2026); 10Y breakeven 2.24%; dot plot revised PCE to 3.3% for 2027 — elevated but not emergency-level [FRED, TradingKey] 4. **Historical frequency of >25bps hikes?** — 12 out of ~248 meetings (4.8%) since 1994; only 1 December meeting ever (Dec 2022, +50bps) ≈ 3.2% December base rate; 6 of 12 instances were concentrated in 2022 [code_execution] 5. **Market/dot plot path into late 2027?** — Median dot at 3.50–3.75% end-2027; JPM forecasts single +25bps hike in Sept 2027; Goldman forecasts cuts in 2027; futures price one +25bps hike by Oct 2026 then hold [Yahoo Finance, JPM, Goldman] # Key facts (high-confidence, factual) 1. [FRED] Fed funds effective rate: 3.63% as of July 2026 2. [FRED] 10Y breakeven inflation: 2.24%; unemployment: 4.2% 3. [BondSavvy/TradingKey] June 2026 dot plot median end-2027: 3.50–3.75%; 5 dots at 3.75–4.00%, 3 above, 10 below 4. [code_execution] Only 1 of ~31 December FOMC meetings (1994–2024) featured >25bps hike (Dec 2022) 5. [JPM] JPM base case: single +25bps hike in Sept 2027, not December, not >25bps 6. [Goldman] Goldman base case: rate cuts in June and December 2027 # Cross-market signals - **Kalshi related**: Jan 2028 >25bps hike = 11% — 11× higher than Dec 2027's 1%, implying market sees December 2027 as a particularly unlikely timing - **Polymarket**: No active markets found for this event - **Futures/rates**: Markets price one +25bps hike by Oct 2026, then flat through mid-2027 [Advisor Perspectives] # Analyst opinions and speculation - JPM: Hold rest of 2026, +25bps in Sept 2027 only — no >25bps scenario [JPM] - Goldman: Cuts in 2027; >25bps hikes "unlikely though more likely than initially thought" [Goldman] - FOMC minutes (Apr 2026): Some concern tariff/energy shocks could de-anchor inflation expectations — tail risk only [Fed.gov] - Kalshi traders (May 2026): 63% chance of a hike by July 2027 — but standard 25bps, not jumbo [CNBC] # Directional lean per outcome - **Yes (>25bps hike Dec 2027)**: Requires inflation re-acceleration to emergency levels AND Fed choosing December as the meeting AND opting for jumbo vs. standard increment — three compounding low-probability conditions. Sole support: elevated PCE forecasts and hawkish tone shift. - **No**: Supported by dot plot median (flat/cuts), both major bank forecasts (JPM 25bps Sept only; GS cuts), historical rarity (3.2% December base rate), current easing trajectory, and Kalshi price at floor (1%). # Gaps / unknowns - 18 months of macro data between now and Dec 2027 (tariff impacts, energy shocks, labor market evolution unknown) - New Fed chair (Warsh) policy reaction function under stress is untested - No dot plot beyond June 2026; next update September 2026 # Calibration anchors - **Kalshi current YES price: 1.00%** (primary anchor — at floor, illiquid) - December FOMC >25bps historical base rate: ~3.2% - Conditional probability model (hiking cycle × jumbo given hiking): ~2.2% - Scenario-weighted model: ~5.4% (shock scenarios dominate) - Synthesized model central estimate: ~3–4%; Kalshi at 1% appears to underprice tail shock risk slightly, but is directionally correct

1. Both forecasters anchor heavily on the Kalshi 1% price but underweight the brief's own calibration models, which estimate 3–5% after accounting for tail shock scenarios. The brief explicitly states "Kalshi at 1% appears to underprice tail shock risk slightly" and the conditional probability model yields ~2.2% while scenario-weighting reaches ~5.4% — yet both forecasters land at exactly 3% without clearly reconciling these divergent anchors. 2. Neither forecaster adequately addresses the Jan 2028 Kalshi market pricing >25bps at 11%, which is 11× the December 2027 price. This cross-market signal implies the December timing specifically is being discounted rather than the jumbo hike scenario itself, and neither forecaster explains why they treat the December 2027 price as more informative than this closely related market. 3. Both forecasters treat the "three compounding low-probability conditions" argument as decisive, but they fail to note that these conditions are correlated — if inflation re-accelerates sharply enough to trigger a jumbo hike, it would likely push the Fed to act before December 2027, making September or an earlier meeting more probable, which is exactly what the Jan 2028 cross-market signal reflects. This correlation structure actually reinforces No but for a different reason than either forecaster articulates. 4. The untested Warsh reaction function is mentioned by both forecasters only in passing, yet the brief notes his hawkish language shift and removal of easing bias at his very first meeting — a meaningful signal that deserves more weight as a potential upside tail driver, especially combined with the FOMC minutes flagging tariff/energy de-anchoring risk. 5. Both forecasts are identical at Yes=0.030 despite different stated confidence levels (high vs. medium), suggesting potential anchoring on each other or on the brief's "3–4%" synthesized estimate rather than independent reasoning — the medium-confidence forecaster in particular should show wider uncertainty.

3% (65% confidence)

Yes: 3% No: 97%

Both forecasts converge at 3% Yes, slightly above the 1% Kalshi floor to account for the brief's scenario models (2-5%) and 18 months of macro uncertainty. A >25bps December hike requires inflation re-acceleration plus December timing plus a jumbo increment—correlated but still very low-probability conditions. The dot plot, bank forecasts, and historical rarity all support No; 3% is a reasonable tail allowance.

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