Nonfarm Payrolls — Impact on Fed Rate Prediction Markets

How Nonfarm Payrolls Moves Fed Rate Prediction Markets

Monthly change in employed workers across all non-farm sectors — the headline jobs report number.

The Fed has a dual mandate: price stability AND maximum employment. A blowout jobs number means the economy can handle higher rates, reducing the case for cuts.

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 NFP, the preliminary coefficient is ±+/- 4–8pp on cut probability. This means ifNFP comes in 1 standard deviation above consensus (hawkish surprise), the model reduces cut probability by approximately +/- 4–8pp 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.