Core CPI (ex Food & Energy) — Impact on Fed Rate Prediction Markets

How Core CPI (ex Food & Energy) Moves Fed Rate Prediction Markets

Consumer Price Index excluding food and energy — the Fed's preferred inflation gauge after PCE.

The Fed targets 2% inflation. Core CPI above consensus signals persistent inflation, making cuts less likely. The single most market-moving indicator for Fed odds.

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 Core CPI, the preliminary coefficient is ±+/- 6–10pp on cut probability. This means ifCore CPI comes in 1 standard deviation above consensus (hawkish surprise), the model reduces cut probability by approximately +/- 6–10pp 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.