Monas Financial is turning bearish on KXHIGHNY, the daily high temperature settlement contract for New York City, as the probability of a Federal Reserve rate hike in December 2026 climbs to 85.5%. This shift is driven by a domino effect of monetary policy tightening that threatens to cool the city’s infrastructure demand and lower the daily high temperature settlement probability.
The primary catalyst is the market-implied probability of a 25 basis point rate hike in December 2026, currently standing at 85.5%. According to the FedWatch-Kalshi market data pool, this expectation suggests a prolonged period of higher interest rates. For real estate developers and construction firms, higher rates significantly increase the cost of capital. This financial pressure typically leads to a slowdown in new housing starts and reduced investment in infrastructure projects.
The mechanism connecting these financial pressures to KXHIGHNY is the reduction in demand for cooling services. As construction activity slows and the broader economy cools due to higher borrowing costs, the peak electricity demand in New York City is expected to decline. This reduction in energy consumption has a secondary physical effect: it mitigates the urban heat island effect. With less energy demand, the city’s thermal load decreases, leading to lower daily high temperatures.
Consequently, the lower settlement probability for the 'Above 60°F' strike on KXHIGHNY is a direct result of this chain reaction. The combination of a cooling construction sector and a less intense urban heat effect points toward a bearish outlook for the contract.
Source: Kalshi FedWatch market data, probability of 25bps hike in Dec 2026
What would change this read
A significant rise in housing starts or an unexpected heatwave event in NYC could reverse this trend by increasing demand for cooling infrastructure and driving daily high temperatures above 60°F.
