December Cut Contract at 71¢ Bid Looks Overpriced After Hot PPI on Kalshi

– February PPI surged 0.7% month-over-month, more than double the 0.3% consensus, pushing year-over-year inflation to 3.4%.

– The December cut contract (Kalshi) trades at a bid of 71¢ / ask of 74¢, implying roughly 71-74% odds of a 2025 cut.

– PPI feeds directly into PCE calculations, meaning the inflation already in the pipeline will pressure the December contract further regardless of today’s hold outcome.

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THE MISPRICING

The live structural trade is not the December hold contract — which, despite its near-certain fundamental probability, remains structurally underpriced at a bid of 57¢ / ask of 64¢ — but rather the December cut contract at a bid of 71¢ / ask of 74¢, where hot PPI data mechanically feeds into PCE calculations and is likely to force further repricing of the entire 2026 cut path.

THE CONTRACT

The hold contract (KXFEDDECISION-28JAN-H0) shows a YES bid of 57¢ / YES ask of 64¢, last traded at 58¢, with both the bid (57¢) and ask (64¢) appearing structurally underpriced relative to the 99% CME FedWatch probability (≈99¢). CME FedWatch places a 99% probability on a hold at the March 18 meeting and 95% at April 30 — making the hold contract’s 57¢ bid structurally underpriced relative to futures, but not the live trade.

THE MATH

February headline PPI at 0.7% month-over-month printed against a 0.3% consensus, lifting the year-over-year rate to 3.4% versus a 3.0% forecast. Raymond James chief economist Eugenio Aleman stated the report “tilts the risk toward a more hawkish tone” with “higher for longer” messaging ahead, specifically flagging re-entering energy inflation. That language, if echoed by Powell, reprices the December cut contract — not the hold.

THE RISK TO THE CALL

Powell’s press conference delivers explicitly dovish guidance on disinflation progress, directly contradicting the PPI signal and pushing the December contract back toward 80¢. The thesis is directionally correct but early if energy inflation data takes two or more months to register in core PCE prints.

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This is market commentary, not financial advice. Always verify contract terms and do your own research before placing any trades.

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