Good morning 🌅, and welcome to this week's edition of Kalshi Kit. Last week saw the markets go out with a bang -- quite literally after the Dow's 1,000-point skid on Friday. We're diving into inflation in this one, plus a special announcement on elections at the end to go out with a bang of our own. 

• U.S. Treasury yields are climbing this week as the selloff of government bonds gains steam. This follows Powell's announcement that the Federal Reserve will hold the line against inflation going into 2023.

• The Fed's balance-sheet unwind is set to ramp up this week, which means the central bank will finally begin unloading the Treasury bills it started amassing almost three years ago. Coupons are expected to fall below the Fed's new cap, leading September to be the first month that bills will be redeemed.

• The British pound fell to its lowest level versus the U.S. dollar since March 2020 following fears that the U.K. economy may be headed for an imminent recession. The USD often trades as a risk-off proxy, so it could receive another boost if the Fed's tightening roadmap deteriorates sentiment and triggers volatility. 

Let's see what the Kalshi markets are saying in anticipation of the big week ahead:

Market Watch 👀

Fed Interest Rates 🏦

>3.00% Yes: 58¢    No: 42¢    

Kalshi markets are forecasting a 58% chance that the Federal Reserve will hike rates by at least 75 bps come September. On the flip side, markets are predicting a 42% chance that the Federal Reserve will hike rates by less than 75 bps in September.

• Earlier in the month, San Francisco Fed President Mary Daly said hiking rates by 50 or 75 basis points at the Fed's next policy meeting on Sept. 20-21 would be a "reasonable" way to get short-term borrowing costs to "a little bit above" 3% by the end of this year. With inflation currently running at more than three times the central bank's target 2%, this hike would bring borrowing costs on their way to a little bit higher in 2023.

• 75 basis points is still considered unlikely by some economists, who expect several factors to conspire and bring inflation down. Ian Shepherdson, chief economist at Pantheon Macroeconomics, cited last week that “Margins are going to fall, and that is going to exert strong downward pressure on inflation." If true, this could help the Fed breathe more easily and avoid a 75 bps hike. 

RCP Biden Approval Rating 🇺🇸

41.7-41.9?  Yes: 26¢   No: 74¢  

Kalshi markets are predicting a 74% chance that President Biden's approval rating will be between 41.7 and 41.9% by 11 AM EST on September 2nd, 2022 (according to RealClearPolitics). On the other hand, markets are forecasting a 26% chance that Biden's approval rating will fall below or above the ~41.8% range on September 2nd.  

• As Democrats see a slight rebound in approval ratings, there are several factors that may contribute specifically to President Biden's. In a recent interview with Thomas Gift, founding director of UCL's Center on US Politics, cited that it might be due to "political wins" such as the signing of the Inflation Reduction Act, falling gas prices in the U.S., as well as the killing of the al-Qaeda leader Ayman al-Zawahiri. 

• While Biden's recent rise in job approval rating is at the highest in a year, he still remains underwater overall, with 53% of Americans disapproving of his job performance.

Inflation 📈

>2.0% Yes: 64¢   No: 36¢

Kalshi markets are predicting a 64% chance that the Consumer Price Index will rise more than 0.2% in September. Conversely, markets are predicting a 36% chance that the Consumer Price Index will fall less than 0.2% in September.

• At the Fed’s Jackson Hole conference Friday, Fed Chair Powell made evident it won’t waiver in its fight against inflation, even if it causes some economic pain in the process. Significant data is coming before the Fed's September meeting, where it will be decided whether to hike rates again. Unemployment, gas and rent price estimates may all play a role in guiding the upcoming hike. 

• Despite Powell's clear stance, slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of impending interest rate hikes. For example, the U.S. Labor Department report released last Wednesday demonstrated consumer prices didn't rise at all in July compared with June, plus a red-hot job market and suddenly buoyant equity prices. This data, to some pundits, suggests the economy needs more of the cooling that would come from higher borrowing costs.

The Holy Grail of Events Trading 🏆

There is no greater determinant of how you will live your life than who we elect to make decisions on our behalf. Yet there is no regulated financial product today that will let you hedge against the consequences of what policy direction the country is heading.

You can change that. The CFTC has announced that it is seeking public comment on Kalshi’s political control contract.

You're invited to, respectfully, tell the CFTC what risks you face from elections and how you would use the contracts to hedge those risks.

Policy on taxes, environment, healthcare, energy, education, and practically every economic aspect of a person’s life all stem from which party sits in the majority. Whether you're looking to become a more active trader or just an informed citizen, each of these policy decisions present meaningful changes and risks to Americans’ economic realities and bottom lines. For example, if you're working in a regulated industry, you can gain or lose a job depending government policies that elections create.

Trading on elections is commonplace on unregulated exchanges, other democracies like the United Kingdom, and by big banks and Wall Street through over-the-counter products. It's time to bring election markets home, into the light and onto a fully regulated exchange that brings their hedging and forecasting power to all individuals and businesses, while ensuring proper participant protections are in place.

Political control contracts would allow for strong hedging utility for you to protect against risks they could face from the results of federal elections. You deserve to be able to insure yourself from political risk.

If you believe in expanding access to events and election risk hedging tools, we encourage you to submit comments to the CFTC that these contracts belong on a regulated exchange.

We are grateful for the Commission’s deliberate and thoughtful consideration of our proposal and its engagement with us on these contracts over the last 10 months. We look forward to the agency completing this process in a timely manner and to continuing the conversation with all stakeholders.