Nearly 40% chances of stagflation by end of 2026, traders say

• Stagflation probability surged from 11% to nearly 40% in just three months on Kalshi's prediction markets, reflecting growing concerns about simultaneous high inflation and unemployment
• Kalshi traders predict inflation will reach at least 4.5% in 2026, significantly higher than FactSet's consensus forecast of 2.8%
• Soft landing probability collapsed from 55% in early March to only 21% currently, now the least likely economic outcome according to traders

Market Summary: Stagflation Risk Rising, Traders Warn

Key Development:

Kalshi traders now assign a nearly 40% probability of stagflation hitting the U.S. economy by end of 2026, a sharp increase from just 11% three months ago. This represents a significant deterioration in economic outlook among market participants.

Critical Data Points:

• Consumer Price Index (CPI) reached 3.8% year-over-year in April 2025
• Wholesale prices experienced their largest increase (specific figure not provided)
• Unemployment rate held steady at 4.3% in April, remaining above 4% since May 2024
• Kalshi traders predict inflation will reach at least 4.5% this year, substantially higher than FactSet's consensus forecast of 2.8%

Market Implications:

The probability of a "soft landing"—where the economy slows gradually without high inflation—has collapsed from 55% in early March to just 21%, now the least likely outcome. This dramatic shift reflects growing concern about simultaneous price pressures and labor market weakness.

Notably, Polymarket traders show more optimism, pricing stagflation at only 22% and soft landing at 37%, suggesting significant disagreement among prediction markets.

Historical Context:

Economists, including Raymond James' Eugenio Aleman, suggest any stagflation period would likely be brief and less severe than the 1970s-80s crisis, despite current oil supply shocks and rising prices drawing comparisons to that era.

Bottom Line:

Traders are increasingly pricing in a challenging economic environment through 2026, with elevated inflation persisting alongside rising unemployment—a combination that would complicate Federal Reserve policy decisions and pressure corporate earnings.