The Cut Comes Off the Table

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Last week the markets told you the Fed wouldn’t cut. This week the Fed agreed — and went further. Kevin Warsh’s first meeting held rates unanimously, then buried the cut: the dot plot flipped to project a hike, and the easing bias was gone. The crowd front-ran the pivot by a week. With oil still near $90 and a war still choking the Gulf, the order book is reading the Fed faster than the Fed reads itself. — The Editor

What the markets think this week — the Fed cluster up top, repriced hard after Wednesday’s hawkish hold. Figures are verified live at send.

The story this week is a pivot the markets saw coming. At Warsh’s first meeting the Fed held at 3.50–3.75% — a unanimous 12–0 — but the projections underneath flipped hawkish: 9 of 18 officials now pencil in a 2026 hike, six of them two, a reversal from March when the median still implied a cut. The committee also stripped its easing-bias language.

That vaulted the “Fed hikes in 2026” market to roughly 38% from the mid-teens, while “zero cuts this year” surged to about 78% — the contract that sat at 57% just before the meeting. A September cut, a coin-flip earlier in the year, now prices in the low single digits.

The catalyst is in the data. May CPI ran 4.2% on the headline — a multiyear high — as the war’s oil shock bleeds through, and the Fed lifted its year-end inflation projection to 3.6%. Warsh, who has long argued the Fed should look through supply shocks, still couldn’t pencil in relief. The throughline: the crowd didn’t just call the hold — it priced the hawkish turn before the dots moved.

One market is now pricing the dots becoming reality. The contract on the Fed delivering a hike by December trades around 38% and climbing — still a minority bet, but a fast-rising one for an outcome that was near-zero in spring.

Why the move beyond the obvious dot-plot read? Warsh used his first press conference to launch five reviews — of the inflation framework, the data, communications, the balance sheet, even the dot plot itself — and to drop the easing bias. Traders heard a chair willing to break with the cut-by-default posture markets assumed under Powell. The wrinkle: the president who appointed Warsh to cut has threatened to sue him if he doesn’t, so the forward bet is partly a bet on the new chair’s independence. The focus isn’t whether 38% is right — it’s that capital is pricing a genuine hike before any vote. Resolution: December.

We grade the markets, including when they miss. This week, the crowd earns its best mark yet.

The hits: the “Fed holds in June” contract priced the outcome above 95% and the Fed delivered a unanimous hold. More striking, “zero cuts in 2026” sat at 57% a week before the meeting — and the Fed’s own dot plot then flipped from an implied cut to an implied hike. The market read the pivot before the policymakers published it.

The misses, carried over: traders — and the economists who in February still expected a June cut — were too slow to abandon the easing story, though the crowd left it well ahead of the forecasters. And markets stayed too optimistic on a quick Hormuz reopening, which still hasn’t come. The pattern holds: this crowd reads turning points early. Every call we flag in On the Radar enters the log for grading.

Strip out the jargon and here’s the hawkish Fed at your kitchen table. The cut many borrowers waited for is off the table for 2026, and a hike is on it — so mortgage, credit-card, and auto-loan rates aren’t just staying high, they could climb. The relief isn’t coming this year.

Second, your bills. May inflation ran 4.2%, a multiyear high, with gasoline still tied to roughly $90 oil and a Gulf war that won’t quit — groceries and fuel stay stubbornly expensive. The one upside: savings accounts and CDs keep paying the most they have in years, and a Fed leaning toward hikes keeps them there. None of this is advice; it’s the translation. When the dot plot moves, it moves your monthly payment.

A hawkish Fed doesn’t pause the domestic fight over these markets. Minnesota’s outright ban still takes effect August 1 unless the CFTC’s suit blocks it, and roughly 18 states remain in litigation over whether federal authority preempts state gambling law.

A new frontier is opening, too: markets are increasingly pricing institutional questions — whether the president pressures or removes his own Fed chair, whether Warsh holds the line. Contracts on the conduct of named officials raise the same integrity worries as the wartime insider cases this spring, where advance knowledge moved real money. The map of what you can legally trade — and on whom — keeps shifting.

New here? A prediction-market price is just a probability in disguise. A contract that pays $1 if an event happens trades at whatever price buyers and sellers agree on — and that price, in cents, is the market’s implied odds. “Zero cuts in 2026” at 78% means traders, risking real money, collectively put the chance near 78%.

That is not a prophecy. A well-run market priced at 78% should be wrong about a fifth of the time — and if it isn’t wrong that often, it was never really 78%. That property is called calibration, and it’s the yardstick behind Prediction vs. Reality: not “did the favorite win,” but “when the market said 70%, did it happen about 70% of the time?” Read the number as a temperature, not a verdict — and watch the volume, because a confident-looking price on a thin market is just a guess wearing a suit.

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Prediction Markets Alert provides general-interest readers, forecasters, journalists, and professionals with weekly analysis of prediction-market movements, forecasting trends, and the events that move the odds.

Disclaimer: This publication is for informational and educational purposes only. It does not constitute investment, trading, betting, or financial advice, and does not recommend any position. Prediction markets carry risk, and participation is restricted or prohibited in many jurisdictions — readers are responsible for knowing and complying with the laws that apply to them. Market-implied probabilities reflect crowd sentiment, not certainty. Past accuracy does not guarantee future results.