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 make a jumbo (>25bps) cut at the December 2027 meeting, ~2 years out, making it highly speculative and driven by future economic conditions. Large cuts (>25bps) historically only happen in recessions or crises, so the base rate is low. The market price is the primary anchor, supplemented by current rate trajectory and cross-market signals.

# Current state The Fed is currently on hold at 3.63% (June 2026), with the dot plot showing 9 members projecting hikes in 2026. The question resolves YES only if the Fed cuts by **more than 25bps** (i.e., ≥50bps) at the specific December 8, 2027 meeting. # Timeline of key events - **2026-06-xx** — FOMC holds rates at 3.50–3.75%; dot plot shows 9 members favor 2026 hike, only 1 projects cut [Schwab, TradingKey — confirmed] - **2026-06-xx** — Fed Chair Warsh declines to submit dot plot forecast, citing skepticism of forward guidance [Schwab — confirmed] - **2026-07-01** — Current DFF: 3.63%; 10Y breakeven inflation: 2.23%; unemployment: 4.3% [FRED — confirmed] - **2026-xx-xx** — Goldman Sachs projects only two 25bps cuts in all of 2027 (June + December) [GS — reported] - **2026-xx-xx** — J.P. Morgan projects a rate *hike* of 25bps in September 2027 [JPM — reported] --- # Event Will the Federal Reserve cut rates by >25bps (i.e., ≥50bps) at the December 2027 FOMC meeting? # Outcomes to forecast - **Yes** — Fed cuts >25bps at Dec 8, 2027 meeting - **No** — Fed does not cut >25bps (holds, hikes, or cuts exactly 25bps) # Kalshi market anchor **KXFEDDECISION-27DEC-C26 current YES price: 1.00%** - 7-day change: **−21pp** (massive collapse from ~22%) - 30-day change: −16pp - Volume: ~13 contracts/day (thin market) - Range over data window: 1%–22% - This is the PRIMARY anchor. The sharp drop to floor (1%) suggests the market has decisively repriced this as near-impossible under current conditions. # Sub-question answers 1. **Kalshi price for >25bps cut at Dec 2027?** — 1.00%, down from a high of 22% within the last 30 days. [Kalshi direct] 2. **Current fed funds rate and 2027 dot plot path?** — DFF at 3.63% (June 2026). June 2026 dot plot shows majority projecting 3.1–3.9% range by end-2027, implying gradual cuts — not jumbo moves. Core PCE still ~3.3% in 2026, 2.5% in 2027 per SEP. [FRED, Schwab, TradingKey] 3. **Historical frequency of >25bps cuts?** — 16 instances since 1990 (~5.7% per meeting unconditionally). Virtually all cluster in three crises: dot-com (2001), GFC (2007–09), COVID (2020). One outlier: Sep 2024 insurance cut. P(>25bps | recession meeting) ≈ 41.7%; P(>25bps | non-recession) ≈ 0.4%. [Code execution] 4. **Economic indicators for 2027 recession risk?** — Unemployment stable at 4.3%; 10Y inflation breakeven ~2.23% (anchored); PCE elevated ~3.3% in 2026. Stagflation risk noted (weak GDP + high inflation). No major institution has recession as base case for 2027. [FRED, Morningstar, GS] 5. **Related Fed decision markets?** — No directly comparable Polymarket or Kalshi near-term cut markets returned. Goldman projects only 2×25bps in 2027; JPM projects a hike. Futures price ~4% through mid-2027. [GS, JPM, StreetStats] # Key facts (high-confidence, factual) 1. [FRED] Fed funds rate at 3.63% as of June 2026 2. [FRED] Unemployment 4.3%, 10Y breakeven 2.23%, CPI rising moderately 3. [Schwab/TradingKey] 9 of 19 FOMC members favored hike in 2026 at June meeting 4. [GS] Goldman base case: 2×25bps cuts in 2027 only (June + Dec) 5. [JPM] J.P. Morgan base case: 25bps *hike* in Sept 2027 6. [Code] Only 16 cuts >25bps in ~280 meetings since 1990; 15/16 in recession windows 7. [Schwab] New Chair Warsh hawkish, no dot plot submitted # Cross-market signals - **Kalshi related:** No meaningful related Fed markets returned; Johnny Depp/EO/spending markets unrelated - **Polymarket:** No Fed 2027 markets found - **Futures:** StreetStats prices ~4% through mid-2027 — implying *no* cuts in first half of 2027, let alone jumbo cuts # Analyst opinions and speculation - Goldman Sachs: 2×25bps in 2027 only; no jumbo cuts [GS] - J.P. Morgan: rate *hike* in Sept 2027 [JPM] - BlackRock: jumbo cuts only in recession; base case not recession [BlackRock] - Morningstar: stagflation dynamic limits Fed's ability to cut aggressively [Morningstar] - Warsh chair: hawkish, anti-forward guidance, committed to price stability [Schwab] # Directional lean per outcome - **Yes (>25bps cut):** Requires recession or acute financial crisis by Dec 2027. Historical base rate ~9-10% from scenario decomposition. Current institutional consensus strongly against any cut at all in 2027 (JPM) or only standard cuts (GS). Kalshi has collapsed to 1%. - **No:** Supported by near-universal consensus (GS, JPM, dot plot), sticky inflation, hawkish Chair Warsh, futures pricing ~4% through 2027, and the Kalshi market floor at 1%. # Gaps / unknowns - No 2027 dot plot exists yet (18+ months away) - Unknown whether tariff/trade shock or financial stress materializes by 2027 - Warsh's unconventional approach adds uncertainty to Fed reaction function - The 30-day Kalshi price drop from 22%→1% is dramatic — possible thin-market artifact or genuine information # Calibration anchors - **Kalshi current YES price: 1.00%** (primary anchor — at floor) - **Scenario model estimate: ~9–10%** (base rate with recession premium) - **Unconditional historical base rate: ~5.7%** per meeting - **Non-recession base rate: ~0.4%** per meeting - **Precedent:** Sep 2024 was the only non-crisis >25bps cut in 35 years; current inflation environment is less permissive than Sept 2024 - **Kalshi price collapse** (−21pp in 7 days) strongly suggests new information or consensus shift — but thin volume (13 contracts/day) means this may not be highly informative

1. Both forecasters treat the Kalshi floor of 1% as semi-reliable despite explicitly acknowledging the market trades only ~13 contracts/day and dropped 21pp in 7 days. A thin market with such extreme volatility is a poor anchor; the forecasters should discount it more heavily and rely primarily on the historical base-rate and scenario decomposition (~9-10%), yet neither explains why they chose 4% rather than, say, 7-8%. 2. Neither forecaster engages seriously with the 18-month time horizon as a meaningful source of uncertainty. The brief itself notes no 2027 dot plot exists, tariff/trade shocks are unknown, and Warsh's unconventional reaction function adds model uncertainty — yet both forecasters converge identically at 4% without discussing how much that horizon expands tail risk relative to, say, a 3-month window. 3. Both forecasters under-weight the non-recession historical base rate (~0.4%) vs. the scenario-weighted estimate (~9-10%) without clearly explaining their implicit recession probability. The brief implies ~9-10% from a scenario model; to arrive at 4%, one must be implicitly assigning ~10% probability to recession — but neither forecaster states or defends this assumption explicitly, making the 4% figure appear reverse-engineered from the Kalshi price rather than derived from fundamentals. 4. Neither forecaster addresses the September 2024 precedent (the only non-crisis >25bps cut in 35 years) and whether the current inflation environment (PCE ~3.3% in 2026 vs. ~2.5% in Sept 2024) materially closes off that "insurance cut" pathway, which the brief flags as a relevant distinction. 5. The forecasters do not reconcile the contradiction between GS (2×25bps cuts in 2027) and JPM (a hike in 2027) — these represent opposite ends of the plausible base case, and their divergence suggests genuine uncertainty about the 2027 rate path that neither forecaster incorporates as upward pressure on Yes probability.

5% (50% confidence)

Yes: 5% No: 95%

A >25bps cut requires recession or acute financial stress by Dec 2027, which no institution has as a base case. The scenario decomposition (~9-10%) is inflated over an 18-month horizon, while the Kalshi 1% floor is unreliable given thin volume. Sticky inflation (PCE ~3.3%) closes off the Sept-2024-style insurance cut pathway, and hawkish Chair Warsh plus GS/JPM consensus argue against jumbo cuts. I settle slightly above the two forecasts at 5% to reflect genuine 18-month tail risk while staying anchored near the market.

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