The latest data from the prediction market shows that the probability of the Federal Reserve staying put in October has risen from 50% back to 79%.

Written by: Mahe, Foresight News

On the evening of October 14, the U.S. September unadjusted CPI year-on-year recorded 3.7%, the highest since May of this year, exceeding the market expectation of 3.6%. The U.S. September unadjusted CPI month-on-month recorded 0.6%, the highest since April of this year. The U.S. September unadjusted core CPI year-on-year rose to 2.6%, the highest since June of this year, above the market expectation of 2.5%. The U.S. September adjusted core CPI month-on-month recorded 0.3%, higher than the market expectation of 0.2%.

Once the data was released, U.S. stocks, South Korean stocks, and the cryptocurrency market showed immediate reactions. The three major U.S. stock index futures dropped, with the Nasdaq futures down 0.5%; spot gold fell nearly 1%, and spot silver dropped nearly 2%. Bitcoin went down, breaking below $83,000.

As of October 15, U.S. stocks experienced one of the worst single-day performances since July: the S&P 500 fell about 1.1%, closing at 7718.94. The Nasdaq fell about 1.9%, closing at 26692.87. The Dow Jones Industrial Average fell about 0.1%, relatively resisting the decline, closing at 51621.48. South Korean stocks opened sharply lower, with declines around 5.6-5.7%, briefly dipping to around 5600, continuing the streak of losses.

Bitcoin, after breaking below $83,000, is currently fluctuating near the $80,000 mark. The altcoin market is seeing a correction, with formerly leading assets like ZEC, LIT, ENA, and NEAR also significantly retreating from their peaks.

According to Coinglass data, in the past 24 hours, liquidation of contracts across the entire network amounted to $752 million (including commodities and RWA derivatives), of which long positions accounted for $685 million.

After surge in October rate hike probability, rapid drop follows

Following the release of the September CPI data, there was a clear shift in market pricing of the Federal Reserve's policy path. The current target federal funds rate range remains at 3.75%–4.00% (effective rate around 3.88%), which is the level after the first 25 basis point rate hike in the September meeting, marking the first increase in recent years. Previously, most officials and the dot plot median indicated that there was room for at least one more rate hike this year to cope with persistently high inflation above the 2% target.

Before the CPI release, the market estimated the probability of a rate hike at the Federal Reserve's October meeting to be around 20%; after the data was published, this probability quickly rose to about 49%.

However, according to the latest data from Polymarket, today the market is betting the probability of the Federal Reserve staying put in October has risen again to 79%, with the total trading volume in this prediction market nearing $40 million.

The core inflation rates of 0.3% month-on-month and 2.6% year-on-year are both above expectations, and the pressure is coming not only from gasoline (which surged 9.1% month-on-month); housing, transportation, and other core items have also seen a rebound, which weakens the narrative of "one-off energy shocks, core will naturally fall back." The front end of the yield curve has risen, and the dollar has strengthened, reflecting pricing for higher interest rate expectations.

There had been some divergence among Federal Reserve officials. Some officials (including Vice Chair Jefferson and others) emphasized "time to observe more data" before the CPI, believing that the labor market had shown signs of slowing and that they could be more patient. However, Chair Warsh clearly stated after the September meeting that "inflation is too high and has lasted too long," prioritizing price stability. The minutes of the September meeting also showed that the majority of participants believed that one more rate hike within the year was appropriate. Now that core inflation has exceeded expectations again, discussions about whether to "skip" in October have reignited—even if the final decision is to stay put, the language in the statement and press conference is likely to be more hawkish to prevent expectations from unraveling.

It is important to note that the Federal Reserve remains highly data-dependent. The upcoming PPI, retail sales, and more importantly, PCE data will further determine the final inclination of the October meeting. If subsequent data confirms that core inflation is sticky, rather than merely driven by energy disruptions, then the "higher for longer" path will further solidify; conversely, if the labor market significantly weakens and core inflation falls back, the probability of pausing in October and reassessing in December will rise.

Future Trends

According to SoSoValue data, since October, there has been a net outflow in Bitcoin spot ETFs for several days. On October 7, there was even a massive net outflow of $487 million in a single day. Meanwhile, net inflows have also significantly decreased compared to September.

The Bitcoin price ultimately retraced to around $80,000 after failing to break above $88,000.

Glassnode tweeted yesterday, stating that the cost basis for investors who bought at the peak still limits the upside potential of BTC. Holders who bought 1 to 2 years ago sold off substantially when Bitcoin rebounded to $88,000; at this time, the group holding for 6 to 12 months has reached the breakeven point. The price has stagnated just below that level.

Arthur Hayes, co-founder of BitMEX, stated earlier this month that at the beginning of every super bull market, the market must overcome a high wall built from various worries. In 2017, it was the block size debate; in 2020, it was the pandemic; in 2023, it was the collapse of FTX and central bank interest rate hikes; in 2026, it will be anxiety (FUD) induced by AI-driven fears of encryption cracking. The wave of money printing will eventually arrive, and asset prices will ultimately skyrocket.

Michael Saylor, co-founder and executive chairman of Strategy, stated in a recent interview that Bitcoin has bottomed out and is expected to break the $100,000 barrier again. He believes that Bitcoin previously bottomed just below $60,000 and has now rebounded to around $80,000, with the potential for further increases. Saylor mentioned that improving regulatory conditions and banks accelerating the adoption of Bitcoin are driving the market into a new bull cycle. He predicts that the long-term annualized return on Bitcoin will reach 20% to 30% in the coming years.

Cryptocurrency analyst Willy Woo tweeted that the long-term structure of Bitcoin shows it is in the early stages of a bull market, with a local structure characterized by sideways fluctuations.