Reading a Central Bank Decision · Lesson 5 of 6
Market-implied odds: what a quoted probability is, and is not
One concept: a market-implied probability as an attributed snapshot
Why it matters
The newest FOMC brief records, before the decision of 2026-09-16, the prices of contracts on the outcome traded on named prediction markets. Its first cited line reads: "Will the upper bound of the federal funds rate be above 3.75% following the Fed's Sep 16, 2026 meeting?: 88.5%". Its third, from a second venue: "Will the Fed increase interest rates by 25 bps after the September 2026 meeting?: 87.5%". Each line carries a venue, a timestamp and a footnote. A reader who sees a figure in the high eighties may hear a certainty, or may take the number for Kitalpha’s own expectation. It is neither, and the way the brief presents it is what shows that.
The concept
A prediction market trades contracts that pay a fixed amount if a stated outcome occurs and nothing otherwise. The price of such a contract, expressed as a share of the payout, is read as a probability: a contract trading at 88 out of 100 is one that traders on that venue, at that moment, priced as likely to pay. That reading is reasonable, and it has limits that matter for a statement about a single event.
The first limit is that a probability is not a certainty. A contract at 88 is one priced to fail roughly one time in eight. In the long run, across many outcomes priced at 88, about 88 in a hundred occur; for any one decision, the number describes a price, not a settled fact. The complement, 100 minus the price, is the same venue’s price for the outcome not occurring, and it is rarely zero. The second limit is that the price belongs to one venue at one time. Two markets pricing closely related outcomes at the same moment can differ by several points, because they have different traders, contracts and depth; the same contract moves as news arrives. A market-implied probability is therefore a snapshot from a source, and any quotation of it that omits the venue or the time has lost half its meaning.
Kitalpha’s brief keeps both. Each market line names the venue, states the contract’s wording, gives the price as a percentage and the time at which the brief read it, and footnotes the line to its source. The brief adopts none of these figures as its own view; it records what a market priced, exactly as it records what a committee said. The third limit follows from that: a brief can quote a probability only where a market existed. A weekly data release that no venue prices produces a brief with source spans and numbers and no market lines at all, and the absence is information about the event, not a gap in the brief.
Read this way, a quoted probability answers a narrow question, what one venue priced this contract at, at that time, and it answers it precisely. It does not answer what will happen, what the committee intended, or what Kitalpha expects. The bars below show the four lines the newest brief cites, as prices. Look at them as four attributed figures from two venues, and notice that the two from one venue that cover the likeliest outcomes sum to close to, but not exactly, one hundred.
| Item | Value |
|---|---|
| Line 1 (first venue) | 88.5% |
| Line 2 (first venue) | 1.0% |
| Line 3 (second venue) | 87.5% |
| Line 4 (second venue) | 11.5% |
Worked example
Take the newest FOMC brief and its cited market lines. The steps below count the lines, read the first line’s probability and its complement, read the third line from the second venue, take the gap between the two venues, and sum two outcomes from the second venue. Every figure comes from the brief’s footnoted lines at the timestamp the brief records.
Record: FOMC Raises Federal Funds Rate to 3-3/4 to 4 Percent in Unanimous 12-0 Vote · as of · Federal Open Market Committee statement
- Market lines the brief cites in its body 4
- Probability in the first cited line, in percent 88.5%
- Its complement: the same venue's price for the outcome not occurring 11.5%
- Probability in the third cited line, from the second venue named, in percent 87.5%
- First line minus third line: the gap between two venues' prices, in percentage points 1.00 pp Two markets, two prices for closely related outcomes at the same timestamp; neither is a consensus.
- Third line plus fourth line: two outcomes on the second venue, summed, in percent 99.0% Close to one hundred when the two outcomes nearly exhaust the possibilities; the remainder is priced on other outcomes.
What to read off the steps. The third line is the price of the outcome not occurring, which is what an “88” leaves out when it is heard as a certainty. The fifth line is how far two venues disagreed at the same instant about closely related contracts, which is why a single quoted figure is a snapshot from a source rather than the market’s view. The last line shows two outcomes on one venue summing to nearly one hundred, with the remainder priced on the outcomes the brief did not cite. None of these figures is a forecast, and the brief attributes every one.
Faded example
Now a brief without any market lines: the WPSR brief for the week ending 2026-09-11, on a data release rather than a decision. Its span count is given. Complete the last step: its count of market lines.
Second record: EIA Weekly Petroleum Status Report — Week Ending September 11, 2026 · as of
- Attributed spans the WPSR brief cites from its source report0
- Tolerance ±0
Reveal the answer and the explanation
0 — Read the market-line count on the WPSR brief's record. A weekly petroleum report is not an event that prediction markets price, so its brief cites source spans and numbers but no market lines; probabilities appear in a brief only where a market existed and was read at a stated time.
Stored on this device only; not graded.
Retrieval check
Mark your confidence before each answer. Every option carries an explanation; read the ones you rejected too.
-
1. The brief's first cited market line quotes a probability in the high eighties for an outcome before the decision. Factually, that figure means:
Choose your confidence first. -
2. Using the brief's first cited market line, subtract its probability from 100. Enter the complement in percent to one decimal.
Source record: FOMC Raises Federal Funds Rate to 3-3/4 to 4 Percent in Unanimous 12-0 Vote (as of 2026-09-16)
Tolerance ±0.1 %Choose your confidence first. -
3. Using the brief's first and third cited market lines, subtract the third line's probability from the first line's. Enter the gap in percentage points to one decimal, negative if the third is higher.
Source record: FOMC Raises Federal Funds Rate to 3-3/4 to 4 Percent in Unanimous 12-0 Vote (as of 2026-09-16)
Tolerance ±0.1 ppChoose your confidence first. -
4. Each market line in the brief names a venue and a timestamp and is footnoted. That presentation makes the figure:
Choose your confidence first.