On August 28, right after Fed Chair Kevin Warsh finished speaking in Wyoming, three markets published odds on the exact same event: whether the Federal Reserve will raise interest rates on September 16. Fed funds futures said about 56%. The prediction market Kalshi said 48%. Polymarket said 49%. All three numbers were reported the same afternoon.
The obvious explanation is that traders disagree. That’s not really what’s going on. Two of those numbers are prices. The third is a calculation.
Kalshi and Polymarket are prediction markets. You buy a contract that pays a dollar if the Fed hikes and nothing if it doesn’t. If that contract trades at 48 cents, the market is saying 48%. The probability isn’t derived from anything — it is the price. Someone is on the other side of your bet at that number.
Fed funds futures are a different animal. A fed funds futures contract doesn’t settle on what the Fed decides. It settles on the average daily effective federal funds rate for the entire calendar month, as CME Group’s own methodology spells out. The September contract covers all thirty days of September. A hike on the 16th only touches the back half of that window. Nobody trading this contract is betting on “will they hike.” They’re betting on a monthly average.
So where does a percentage come from? CME works backwards. It assumes any move comes in 25-basis-point steps, assumes the effective rate shifts proportionally, weights the meeting date against the days on either side of it, and reads out an implied probability. That’s the FedWatch tool. The output is an estimate resting on a stack of assumptions — a reasonable stack, but a stack. It is not a number anyone traded.
Which leaves the practical question of what to look at. If you want to know the odds of a specific decision on a specific date, the prediction market answers that question literally. If you want to know what the institutions actually hedging their funding costs are positioned for, that’s the futures market, where the money is vastly deeper. They’re measuring different things, so a spread between them isn’t a contradiction to resolve.
The gap tends to open widest right when it matters most — after a Fed chair says something unexpected and everyone reprices at once. That’s also when headlines start quoting whichever number sounds most dramatic, which is a reminder that how the Fed’s message travels can matter as much as the message. The decision lands September 16.
My take: Two probabilities on one event means there were two questions.
Not advice. Just how I see it.