Consumer Sentiment (UMich) — Impact on Fed Rate Prediction Markets

How Consumer Sentiment (UMich) Moves Fed Rate Prediction Markets

University of Michigan Consumer Sentiment Index — a gauge of household confidence.

Falling consumer confidence can become a self-fulfilling prophecy for economic slowdown. The Fed monitors it as a leading indicator of consumption and labor demand.

The Bayesian Sensitivity Model

The model calibrates a sensitivity coefficient for each indicator: how many percentage points the cut probability at the next FOMC meeting moves per standard deviation of surprise. For Consumer Sentiment, the preliminary coefficient is ±+/- 1–3pp on cut probability. This means ifConsumer Sentiment comes in 1 standard deviation above consensus (hawkish surprise), the model reduces cut probability by approximately +/- 1–3pp on cut probability.

These coefficients are preliminary until calibrated from at least 20 historical observations of Kalshi price reactions to each release. The calibration uses a regression of (surprise_zscore × sensitivity_coefficient) against observed Kalshi probability changes, cross-validated against CME FedWatch data going back to 2015.