CPI (All Items) — Impact on Fed Rate Prediction Markets

How CPI (All Items) Moves Fed Rate Prediction Markets

Headline Consumer Price Index — all items including food and energy.

Headline inflation captures the full cost-of-living picture. Spikes in food and energy can temporarily distort readings, but sustained headline strength pressures the Fed.

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 CPI, the preliminary coefficient is ±+/- 5–9pp on cut probability. This means ifCPI comes in 1 standard deviation above consensus (hawkish surprise), the model reduces cut probability by approximately +/- 5–9pp 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.