SIG-110
finance
PENDING
Fed rate hike in 2026?
Direction NO underpriced · Confidence HIGH · Closes 2026-12-09
Market price
20%
at signal
Our estimate
4%
calibrated
Gap
+5.2pp
market vs ours
Status
PENDING
2026-12-09 close
Evidence
- FOMC has been on a cutting/holding trajectory since late 2024 as inflation has moved toward the 2% target; reversing into a hike requires a major inflation re-acceleration shock
- Fed funds futures and OIS curves through 2026 price in further cuts or holds, not hikes — implied probability of any hike in 2026 from rates markets is in the low single digits
- Historically, the Fed almost never reverses from a cutting cycle directly into hikes within the same calendar year absent a 1970s-style inflation shock; base rate is well below 10%
- With ~7 months of 2026 already elapsed and no hike yet, the conditional probability of a hike in the remaining ~7 months further compresses the estimate
- Polymarket thin-tail markets like this routinely trade with a 10-20% 'noise floor' due to low-conviction YES bettors and hedging demand, inflating the YES price above fair value
Counter-evidence
- A sudden inflation shock (oil spike, tariff-driven CPI re-acceleration, or fiscal-dominance scenario) could force the Fed to hike, and Powell has explicitly kept the option open in recent communications.