Prediction markets like Kalshi let users bet on whether the Federal Reserve will leave interest rates unchanged in June
The fed funds rate likely to pause in June as bond vigilantes return to discipline Washington spending
Prediction market traders are pricing in a 94% probability that the Federal Reserve will hold interest rates unchanged at its June 17-18 policy meeting, reflecting growing concerns about fiscal policy and surging government borrowing costs that have fundamentally altered the central bank's calculus.
Sign up to Kalshi to trade on fed rates and other economic indicators.
Kalshi, the federally regulated prediction market, allows users to trade on Federal Reserve meeting outcomes. Contracts are priced between 1 and 99 cents, with each contract resolving to $1 if the predicted event occurs and $0 if it does not. A contract titled “Will the Fed hold rates steady at the June 17-18 meeting?” lets traders bet on whether the central bank will maintain current policy rates.
For example, if a trader believes the Fed will maintain rates unchanged, they might buy a "Yes" contract at the current price of 94 cents. If the Fed indeed holds rates steady, they receive $1 per contract, earning 7 cents profit per contract. If the Fed cuts or raises rates instead, they lose their 94¢ investment. The outcome is verified using the official Federal Open Market Committee statement released after each meeting.
The current trading price of 94 cents reflects the market's collective assessment of a 94% probability that rates will remain unchanged. It indicates a high level of confidence among traders on Kalshi.
The bond market revolt intensified last week, with lackluster bond auctions in both Japan and the U.S. underscoring the global lack of demand for long-term government debt. The 30-year Treasury yield has surged to 5.15%, breaching the psychologically important 5% threshold and approaching levels not seen since 2007.
The selloff isn't limited to U.S. debt. Super-long Japanese government bonds remain near record highs, while UK gilt yields hit their highest level since January. The fiscal concerns have been compounded by Moody's recent downgrade of U.S. debt ratings, focusing investor attention on the country's $36 trillion debt pile and President Donald Trump's tax legislation that could add trillions more.
Federal Reserve governor Christopher Waller provided the most specific guidance yet in a May 22 Fox Business interview, indicating that rate cuts could be considered in the second half of 2025, but only under very specific conditions. He outlined a narrow path forward: If Trump administration tariffs settle around 10% and are finalized by July, the Fed could be positioned to cut rates later this year.
“If we can get tariffs down to around 10% and have that settled by July, then we'll be in an environment in the second half where we could start cutting rates,” Waller said. However, he warned that higher tariff levels would create inflationary pressures that would make rate cuts much more difficult.
Waller also expressed concerns about the Republican tax reform proposals, noting that the actual content may worsen America's already massive budget deficit.
“The market is watching this fiscal policy and questioning whether it can reduce the deficit,” Waller said.
Minneapolis Fed president Neel Kashkari has been even more explicit about the need for patience, suggesting that rate cuts may not be appropriate until well into the second half of 2025, if at all.
The next fed interest rate decision will take place June 18 at 2 p.m. ET. Fed Chair Jerome Powell will hold a press conference to discuss the decision at 2:30 p.m. ET.
The 94% probability for unchanged rates reflects the Fed's institutional caution when facing uncertain economic conditions. The prediction market appears to be factoring in the central bank's historical pattern of extended pauses rather than aggressive policy shifts during periods of conflicting signals.
Currency markets have responded to the Fed's perceived hawkishness, with the dollar strengthening against major trading partners. However, fiscal concerns have also put pressure on the greenback, which experienced a weekly loss against the euro and yen for the first time in five weeks.
Investors are also closely watching trade policy developments as markets hit the halfway point of the 90-day pause on Trump's reciprocal tariffs. The temporary reprieve has provided some stability, but uncertainty about the final tariff structure continues to complicate the fed’s policy calculations.
