Yes refers to: In 2026
Short Answer
Both the model and the market expect that the Fed will do a rate cut greater than 25bps in 2026, with no compelling evidence of mispricing.
1. Executive Verdict
- Rising jobless claims historically precede significant Fed rate cuts.
- Significant economic slowdown or recession triggers larger rate cuts.
- Rapid, sustained disinflation towards 2% target increases larger cut probability.
- Emergency cuts and swap surges require acute systemic crisis.
- Median FOMC voters set a high bar for large 2026 rate cuts.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| In 2026 | 24% | 23.5% | This outcome represents a greater than 25bps rate cut occurring in 2026, not this year. |
Current Context
The Federal Reserve recently paused rate cuts amid inflation concerns. Following three consecutive rate cuts, the Fed maintained its benchmark interest rate at 3.5%-3.75% at its January 2026 meeting. This decision, made on January 28, reflects policymakers' heightened caution regarding inflation, which remains above the 2% target, and signs of persistent economic growth. Governors Stephen Miran and Christopher Waller dissented, advocating for a 25 basis points cut, while Governor Cook supported the decision to hold rates, citing risks skewed towards higher inflation. A brief government shutdown in early February has subsequently led to the rescheduling of crucial economic data releases for January, intensifying the debate surrounding future rate cut decisions.
Economic data and diverse expert opinions shape future outlook. Rescheduled January 2026 data points, including the Employment Situation report (now February 11) and the Consumer Price Index (now February 13), are highly anticipated. The Personal Consumption Expenditures (PCE) price index for November 2025 showed +2.8% year-over-year inflation, with the December 2025 release scheduled for February 20. The labor market shows a stabilized unemployment rate around 4.4% and low job gains, with ADP reporting a private sector employment increase of 22,000 jobs in January. Expert opinions diverge significantly; Loretta Mester suggests waiting for convincing evidence of inflation returning to 2%, while J.P. Morgan Global Research now projects no cuts in 2026 and even a 25bps hike in Q3 2027. Conversely, Bankrate’s annual forecast estimates three cuts totaling 0.75 percentage points in 2026, although some survey economists expect only two due to anticipated "above-trend" economic growth. Kpler suggests the Fed will hold until Chair Powell's term concludes in May 2026, potentially paving the way for a new, perhaps Trump-appointed, chair to implement 50bps of easing. Economist Robin Brooks forecasts a substantial 100 basis point rate cut before the midterm elections if Kevin Warsh becomes the Federal Reserve Chair, while Trading Economics projects the benchmark rate to remain at 3.75% by the end of the current quarter.
Future monetary policy hinges on data and leadership transitions. Common questions revolve around when the Fed will resume rate cuts and whether any adjustment this year will exceed 25 basis points, with current market probabilities for a greater-than-25bps cut at the March meeting being very low (2%). Concerns persist regarding inflation's trajectory towards the 2% target, the resilience of the labor market, and the overall sustainability of economic growth, particularly its reliance on factors like AI spending. The potential for political influence, especially with a new Fed chair nomination expected as Jerome Powell's term ends in May 2026, is also a significant concern. Discussions also touch upon whether mortgage rates might decline before the Fed’s official rate cuts, driven by factors like the 10-year Treasury yield. Key upcoming Federal Open Market Committee (FOMC) meetings are scheduled throughout 2026, including March 17-18, April 28-29, and subsequent quarterly meetings.
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
The price action for this prediction market is characterized by a volatile sideways channel, with the probability of a large rate cut oscillating broadly between 6% and 60% over the life of the market. While the overall long-term trend is flat, recent activity in late January and early February 2026 has been exceptionally turbulent. This period saw a rapid succession of sharp price swings driven by conflicting news events. The market first dropped on January 30 following the Federal Reserve's decision to pause rate cuts, then spiked twice on January 31 and February 1 due to dovish commentary from an outgoing governor and the nomination of a new Fed Chair, respectively. This rally was short-lived, as a significant 14-point drop on February 3 demonstrated that the market ultimately gave more weight to the Fed's official cautious stance and Chair Powell's commentary on the economy's "firm footing."
These dramatic price movements suggest a market with high conviction during specific news cycles, but an overall lack of a firm directional consensus. The total traded volume of over 91,000 contracts indicates significant and active participation. Analysis of the recent price action reveals a potential resistance level around the 46% mark, where the market peaked on dovish news before reversing sharply. A near-term support level appears to have formed in the 15-19% range, where the market has recently bottomed out. The current price of 24% suggests that market sentiment is presently skeptical of a rate cut greater than 25bps occurring this year. The market is pricing in the Fed's stated caution about inflation as the most likely path forward, but the sharp upward reactions to any dovish news indicate that this sentiment is fragile and highly sensitive to changes in personnel or forward guidance.
3. Significant Price Movements
Notable price changes detected in the chart, along with research into what caused each movement.
📉 February 03, 2026: 14.0pp drop
Price decreased from 33.0% to 19.0%
Outcome: In 2026
What happened: The primary driver of the 14.0 percentage point drop in the prediction market on February 3, 2026, was the Federal Reserve's decision to keep interest rates unchanged at its January 28, 2026, FOMC meeting, coupled with Chair Jerome Powell's statements indicating a "firm footing" for the U.S. economy and "somewhat elevated" inflation. This official communication, preceding the market move, signaled a less aggressive approach to rate cuts than perhaps anticipated, thereby reducing the probability of a cut greater than 25 basis points (bps) in 2026. The market had already been aligning with the Fed's December projections, which signaled only one 25bps cut for the year. Additionally, news on February 3, 2026, that Kevin Warsh, known for a historically hawkish stance, was nominated as the next Fed Chair by President Trump, further diminished expectations for significant rate cuts. President Trump's endorsement of Warsh on Truth Social served to highlight this traditional news development, which coincided with the price movement and reinforced the outlook for less aggressive monetary easing. Social media, in this instance, acted as a contributing accelerant, primarily through President Trump's post on Truth Social, which amplified the impact of the traditional news regarding the Fed Chair nomination.
📈 February 01, 2026: 17.0pp spike
Price increased from 15.0% to 32.0%
Outcome: In 2026
What happened: The primary driver of the 17.0 percentage point spike on February 1, 2026, in the prediction market "Will the Fed do a rate cut greater than 25bps this year?" was the news regarding President Trump's nomination of Kevin Warsh as the next Federal Reserve Chair. The confirmation of Warsh's nomination occurred around month-end January 2026, directly preceding and coinciding with the market movement. Warsh is widely perceived as being aligned with President Trump's publicly stated preference for "immediate and deep Fed rate cuts," significantly increasing expectations for aggressive monetary easing in 2026. This news, while disseminated through traditional channels, would have been rapidly amplified and discussed across financial social media platforms, acting as a contributing accelerant to the market's reaction.
📈 January 31, 2026: 16.0pp spike
Price increased from 30.0% to 46.0%
Outcome: In 2026
What happened: On January 31, 2026, a 16.0 percentage point spike in the "Will the Fed do a rate cut greater than 25bps this year?" prediction market was primarily driven by outgoing Federal Reserve Governor Stephen Miran's explicit public statements. Miran, whose term ended on January 31, 2026, reiterated his call for "more than a point of interest-rate cuts" (over 100 basis points) during the year and asserted that "underlying inflation is not a problem". These comments, reported around January 27-28, 2026, directly signaled a potential for rate cuts significantly exceeding 25 basis points, coinciding with the market movement. While President Trump's announcement of Kevin Warsh as his pick for Fed Chair around the same time also introduced uncertainty, Miran's direct and substantial dovish outlook was a more immediate and specific catalyst for the market's expectation of larger cuts. Social media acted as a contributing accelerant, amplifying these news reports.
📉 January 30, 2026: 10.0pp drop
Price decreased from 40.0% to 30.0%
Outcome: In 2026
What happened: The primary driver of the 10.0 percentage point drop in the prediction market "Will the Fed do a rate cut greater than 25bps this year?" on January 30, 2026, was the Federal Reserve's decision to pause interest rate cuts at its January 28, 2026, Federal Open Market Committee (FOMC) meeting. The FOMC voted to maintain the federal funds rate at 3.5% to 3.75%, following three consecutive 25 basis point cuts in late 2025. This decision, coupled with Chair Jerome Powell's statements on January 28 indicating the U.S. economy was "on a firm footing" and current rates were "appropriate," decreased market expectations for aggressive future rate cuts. Furthermore, the FOMC statement removed previous language about rising downside risks to employment, suggesting a more confident economic outlook. Social media activity appears to have been irrelevant, with no influential posts directly causing this specific market movement around the given date.
4. Market Data
Contract Snapshot
This Kalshi market resolves to YES if the Federal Reserve implements a single rate cut exceeding 25 basis points at any point during the calendar year 2026. Conversely, the market resolves to NO if the Fed does not enact a rate cut greater than 25 basis points within 2026. No specific settlement conditions or deadlines beyond the 2026 timeframe for the event are indicated.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Implied probability |
|---|---|---|---|
| In 2026 | $0.24 | $0.77 | 24% |
Market Discussion
Limited public discussion available for this market.
5. How Do Jobless Claims Signal Aggressive Federal Reserve Rate Cuts?
| Key Easing Trigger | Four-week average of jobless claims above 375,000-400,000 (Historical Data) |
|---|---|
| Recessionary Signal | Four-week average of jobless claims above 400,000 (Historical Data) |
| Potential 50bps Cut Catalyst | Four-week average decisively above 350,000 towards 375,000 (Analyst Conclusion) |
Historically, rising jobless claims consistently precede significant FOMC rate cuts. High-frequency labor market data, particularly initial jobless claims, serves as a crucial leading indicator for aggressive Federal Open Market Committee (FOMC) rate cuts. A sustained increase in the four-week moving average of initial claims above 375,000-400,000 has consistently preceded significant monetary easing cycles of 50 basis points or more, as observed during the Global Financial Crisis and the Dot-Com Bust. This threshold has often marked the point where a recession is imminent or underway, necessitating such policy responses.
Key FOMC members prioritize timely jobless claims over lagging monthly reports. Current FOMC members, including Chair Jerome Powell and Governor Christopher Waller, place significant emphasis on the timeliness of claims data for identifying economic inflection points, despite its inherent volatility. While monthly reports provide comprehensive details, their lagging nature makes real-time indicators like jobless claims indispensable for navigating rapid shifts.
A sustained rise in claims above 350,000 signals 'visible labor market stress'. As of early 2026, the FOMC is in a period of 'watchful waiting' for 'visible labor market stress' that would prompt a dovish pivot from their current 'gradually cooling' labor market assessment. A decisive and sustained rise in the four-week moving average of initial claims, moving above 350,000 and heading towards 375,000, would likely constitute this 'visible stress'. This level is considered a high-confidence indicator of a significant economic downturn, demanding a more aggressive monetary policy response, such as an inter-meeting or 50 basis point rate cut, beyond standard 25 basis point adjustments.
6. What Triggers Could Lead to Aggressive Fed Rate Cuts in 2026?
| Current Fed Funds Rate | 3.50%-3.75% (early February 2026 Report) |
|---|---|
| Probability of 25 bps cut by June 2026 | 60% (CME Group FedWatch) |
| J.P. Morgan 2026 Rate Cut Expectation | One cut, not before summer |
The Federal Reserve avoids fixed thresholds for aggressive rate adjustments. Decisions to implement aggressive rate cuts, meaning those greater than 25 basis points, are based on a holistic assessment of economic and financial stability, rather than predetermined numerical triggers. Historical events, like the 2008 Global Financial Crisis and the COVID-19 pandemic in 2020, illustrate that large cuts are emergency responses to acute economic or financial market distress. Such periods are characterized by rapid, significant spikes in key financial stability indicators, specifically the Office of Financial Research (OFR) Financial Stress Index (FSI) and the Corporate Bond Market Distress Index (CMDI), which monitor systemic stress and corporate bond market health, respectively.
Current market expectations anticipate gradual easing, not aggressive adjustments for 2026. The market context for 2026 indicates the Fed is already engaged in cautious easing, having executed three 25 basis point cuts in late 2025. Market indicators, including those tracked by the CME Group FedWatch tool, generally suggest a continuation of gradual normalization. Major institutions such as J.P. Morgan anticipate only one rate cut in 2026, likely not before summer. Similarly, probabilities from the Polymarket platform reflect an expectation of gradual, rather than aggressive, easing.
Aggressive policy in 2026 demands a significant, crisis-level disruption. A rate cut exceeding 25 basis points would necessitate a substantial departure from the current cautious easing trajectory, shifting from a gradual path to a crisis response. Potential catalysts that could trigger such a severe financial stress event include a commercial real estate crisis, a major geopolitical or energy shock, a significant corporate credit event, or a sovereign debt crisis. These scenarios would manifest as a sudden, dramatic spike in financial stress indicators like the OFR FSI and CMDI, signaling systemic risk that would compel the Federal Reserve to implement more forceful action.
7. What Inflation Thresholds Drive Federal Reserve 2026 Rate Cuts?
| Median FOMC Core PCE Projection (End-2026) | 2.5% |
|---|---|
| Median FOMC Federal Funds Rate Projection (End-2026) | 3.4% |
| Market's Informal Core PCE Threshold | ~2.8% YoY |
Median FOMC voters set a high bar for large 2026 rate cuts. Federal Reserve policy concerning a potential rate cut exceeding 25 basis points (bps) in 2026 reveals a significant divergence in inflation thresholds between the median FOMC voter and prominent dove Austan Goolsbee. The median FOMC perspective, derived from the December 2025 Summary of Economic Projections (SEP), establishes a high quantitative barrier for aggressive easing. Their baseline forecast anticipates a slow disinflationary path, with core PCE inflation projected at 2.5% by end-2026, implying only a single 25 bps cut for the year,. For the median voter to justify a cut greater than 25 bps, incoming data would need to show a substantial undershoot of this 2.5% core PCE projection for 2026. This would require evidence that supercore inflation (core services ex-housing), which has no official FOMC projection, is consistently running decisively below its implicit 3.0%-3.5% baseline, potentially at an annualized 2.0%-2.5% for several months. Such disinflation would also need corroboration from a clear softening in labor market indicators, like a rising unemployment rate sustainably above 4.2% or slowing wage growth.
Austan Goolsbee advocates a more flexible, evidence-based approach to easing. In contrast to the median FOMC's cautious approach, Chicago Fed President Austan Goolsbee maintains a more qualitative, evidence-based threshold for aggressive easing. He emphasizes the necessity of 'sustained progress' and 'clear evidence' that inflation is definitively returning to the 2% target, particularly after observing Q1 2026 data. While expressing patience through early 2026, convincing data could prompt him to advocate for faster, more significant easing. His framework is less sensitive to minor deviations from numerical forecasts and more focused on the overall narrative of disinflation, implying a lower bar for a larger cut compared to the median FOMC voter.
8. Do Federal Reserve Swap Line Surges Predict Rate Cuts?
| Historical Correlation (Swap Surge >$50B & Rate Cut >25bps) | Occurred only during concurrent, severe domestic U.S. crises (2008 GFC, 2020 COVID-19) |
|---|---|
| 2008 GFC Swap Line Usage Peak | $583 billion (December 17, 2008) |
| 2020 COVID-19 FOMC Rate Cuts | 150 basis points in less than two weeks (March 2020) |
Large swap line surges only accompany severe domestic crises and aggressive rate cuts. An analysis of Federal Reserve policy actions from 2000 to the present reveals no historical instances where a week-over-week surge in central bank liquidity swap lines exceeding $50 billion was followed by an FOMC rate cut of more than 25 basis points within four weeks, without a severe concurrent domestic U.S. crisis. The only two periods meeting this swap line surge criterion, the 2008 Global Financial Crisis and the March 2020 COVID-19 pandemic, saw swap line activations as part of a comprehensive emergency response to systemic crises profoundly impacting the U.S. domestic economy. This indicates that large-scale swap surges and aggressive rate cuts are coincident indicators of a severe crisis, rather than swap line usage predicting future rate cuts in a stable environment.
Past crises show aggressive rate cuts unified with swap line activation. A detailed examination of 2008 and 2020 confirms that aggressive rate cuts coincided with, or immediately followed, massive swap line surges. During the 2008 GFC, swap line usage peaked at $583 billion by December 2008, while the FOMC cut rates by 150 basis points between October and December 2008, reaching the zero-lower bound. Similarly, in March 2020, swap line usage soared to approximately $160 billion by mid-March, with the FOMC delivering 150 basis points in emergency rate cuts, also returning to the zero-lower bound, as the U.S. faced an immediate severe domestic crisis. These events demonstrate a unified response to existential threats, where swap surges were symptoms of the crisis the rate cuts aimed to combat.
Future rate cuts depend on whether a swap surge signals domestic crisis. For a scenario like 2026, the historical analysis provides a clear framework: a sudden >$50 billion swap line surge is a critical signal, but its interpretation is entirely context-dependent. If such a surge is symptomatic of a simultaneous severe downturn in the U.S. domestic economy, such as a recession or rising unemployment, then a >25bps rate cut would be highly probable, mirroring 2008 and 2020. However, if the surge is tied to a contained international crisis while U.S. domestic indicators remain robust, the Fed would likely use swap lines for international containment but maintain domestic interest rates to focus on its mandate of maximum employment and price stability, as seen during the 2011-2012 Eurozone crisis. Therefore, a bet on a >25bps rate cut based solely on a swap line surge would effectively be a bet on a severe domestic crisis, not merely on the instrument used to mitigate international financial stress.
9. What Market Signals Precede Emergency Fed Rate Cuts, and What's the 2026 Outlook?
| Current VIX | 16-18 |
|---|---|
| 3-month FRA-OIS Spread | 10-20 basis points |
| 2026 Emergency Cut Probability | Less than 15% |
Emergency FOMC rate cuts are rare, systemic crisis interventions. These "break the glass" tools are reserved for acute, systemic, and rapidly deteriorating financial conditions, as evidenced during the Global Financial Crisis of 2008 and the COVID-19 pandemic shock of 2020. Such interventions are not responses to conventional economic slowdowns but to financial market seizures that threaten systemic stability, indicating an immediate threat to the core functioning of the financial system due to a complete loss of liquidity and confidence.
Historically, emergency cuts follow extreme market stress signals. These include a dramatic and sustained spike in the CBOE Volatility Index (VIX) to levels well above 40, signaling extreme investor panic. Concurrently, a severe widening of key credit and funding spreads, such as the FRA-OIS spread exceeding 50-100 basis points in crisis conditions, indicates a breakdown of trust and liquidity in interbank lending markets. Dysfunction in "risk-free" markets, like U.S. Treasuries, ultimately serves as a critical danger signal.
Current market indicators do not suggest an impending emergency cut. As of early February 2026, market data shows no signs of the requisite stress. The VIX remains in a normal range of 16-18, and the 3-month FRA-OIS spread hovers around 10-20 basis points, signifying healthy funding market conditions. Prediction markets reflect this stability, pricing in a low probability (less than 15%) of such an emergency event occurring in 2026. Therefore, a high-impact, low-probability "black swan" event would be necessary for such a cut to materialize this year.
10. What Could Change the Odds
Key Catalysts
Several factors could prompt the Federal Reserve to implement a rate cut exceeding 25 basis points in 2026. These include a significant and sustained economic slowdown or recession, such as two consecutive quarters of negative Gross Domestic Product (GDP) reports or a sharp decline in leading economic indicators. Rapid and sustained disinflation, where Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data consistently show inflation falling rapidly towards or below the Fed's 2% target, would also make larger cuts more probable to avoid overly restrictive monetary policy.
Further bullish catalysts include a severe deterioration in the labor market, with a significant and sustained increase in the unemployment rate coupled with weak job growth. Financial system instability, increased geopolitical shocks leading to economic contraction, or a more dovish shift in Federal Reserve leadership or committee composition, particularly after Chair Powell's term expires in May 2026, could also lead to more aggressive easing. Conversely, the likelihood of a larger rate cut decreases if inflation remains stubbornly above 2.5% or re-accelerates, as the Fed prioritizes price stability.
Strong and resilient economic growth, with GDP consistently above 2.2%, or a robust labor market with low unemployment, would reduce the need for substantial monetary easing. A hawkish shift in Fed communication, or new geopolitical events causing supply shocks and increased inflationary pressures, could also reduce the probability of cuts exceeding 25 basis points. Additionally, a Supreme Court ruling upholding tariffs could keep inflation elevated, further curbing the impetus for larger rate adjustments.
Key Dates & Catalysts
- Expiration: January 01, 2027
- Closes: January 01, 2027
11. Decision-Flipping Events
- Trigger: Several factors could prompt the Federal Reserve to implement a rate cut exceeding 25 basis points in 2026.
- Trigger: These include a significant and sustained economic slowdown or recession, such as two consecutive quarters of negative Gross Domestic Product (GDP) reports or a sharp decline in leading economic indicators [^] .
- Trigger: Rapid and sustained disinflation, where Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data consistently show inflation falling rapidly towards or below the Fed's 2% target, would also make larger cuts more probable to avoid overly restrictive monetary policy [^] .
- Trigger: Further bullish catalysts include a severe deterioration in the labor market, with a significant and sustained increase in the unemployment rate coupled with weak job growth [^] .
13. Historical Resolutions
Historical Resolutions: 1 markets in this series
Outcomes: 0 resolved YES, 1 resolved NO
Recent resolutions:
- KXLARGECUT-25: NO (Jan 01, 2026)
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