Right now, the market-implied probability for a Fed rate increase in September has climbed to almost 60%, with Kalshi currently pricing the likelihood at 49%. These numbers both appear overly elevated based on three key factors.

First of all, inflation expectations derived from market metrics continue to be firmly stabilized. Secondly, productivity enhancements powered by AI offer good justification for optimism regarding the future development of the supply side, while any apprehensions related to AI demand are expected to diminish. Ultimately, implementing further Fed rate hikes would negatively impact areas of the economy that are highly sensitive to interest rates and are already enduring challenges, specifically the housing sector.

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