Market pricing suggests the Federal Reserve is on a trajectory to raise the federal funds rate to a 4.25% peak by the end of 2026, despite recent signals of distress within the housing sector. According to the FedWatch-Kalshi signal, the current Effective Federal Funds Rate (EFFR) sits at 3.88%, already approaching the upper limit of the current target range. This operational rate has drifted upward, and the market is pricing in a 69% probability of a 25 basis point hike to a median upper bound of 4.25% by the December 2026 meeting.
This conviction is further bolstered by cross-market corroboration. The Polymarket macro signal independently assigns a 72.5% probability to the same 25bps hike outcome for the December 9, 2026 FOMC meeting. The divergence between the two platforms—where the 69% Kalshi price offers value relative to the 72.5% Polymarket price—suggests the consensus may still be underpricing the tail risk of a rate increase.
However, the bullish outlook is counterbalanced by the broader economic backdrop. Simultaneous order declines and rising cancellation rates have been reported by major homebuilders, including DHI, NVR, KBH, and PHM, as detailed in their SEC filings. While these broad-based housing sector weaknesses typically serve as a cautionary signal for the Fed, the current pricing trajectory suggests the central bank is prioritizing the inflationary trajectory over immediate housing demand destruction.
Source: SEC EDGAR daily Form 4 filing index, 2026-10-28
What would change this read
If the November 2026 CPI prints below 0.2% MoM or the unemployment rate jumps above 4.5%, the Fed may hold, collapsing the hike probability below 50%.
