Geopolitical Risk Assessment: Forecasting the 2025-2026 Political & Policy Landscape

Key Takeaways

• Presidential stability is the dominant market signal, with a 50% exit probability creating a high-volatility anchor for all other forecasts.
• A remarkable policy stability narrative (Fed on hold, low recession risk) exists in tension with the political volatility story.
• The Kevin Hassett Fed Chair nomination market (38%) is the critical link between the political and policy narratives.
• High-volume, low-probability bets on Bitcoin and NFL futures represent significant speculative capital targeting tail-risk payoffs.
• The prime trading opportunity lies in constructing convergence/divergence plays between the political and macroeconomic probability clusters.

Executive Summary

Prediction markets on Kalshi, with over $63M in aggregate volume across ten key contracts, are pricing a tumultuous 2025-2026 period defined by two core, interconnected narratives: significant uncertainty around the continuity of the Trump administration and a remarkably stable outlook for Federal Reserve policy under Chair Jerome Powell. The standout signal is the market 'Donald Trump out this year?' trading at a probability of 50.0% on substantial $9.8M volume, indicating a deeply bifurcated view on presidential stability that overshadows all other geopolitical and macroeconomic forecasts. This central political risk is directly linked to secondary markets forecasting potential Fed Chair succession (Kevin Hassett nomination at 38%) and is occurring alongside a consensus view of a steady macroeconomic ship—low recession risk (1%) and a high probability (96%) of a Fed on hold by January 2026. This creates a portfolio of asymmetric opportunities: hedges against political volatility are mispriced relative to the calm economic forecasts, and high-volume, low-probability bets on assets like Bitcoin present compelling lottery-ticket dynamics.

Market Deep Dive: The Paramount Political Risk

Core Market: 'Donald Trump out this year?' (Prob: 50.0%, Vol: $9.8M)

This market is the unequivocal focal point of current geopolitical risk pricing. A 50% implied probability of a sitting president leaving office before the end of their term is an exceptionally rare and elevated signal in prediction market history. For context, similar markets for presidents in their first term have typically traded in the low single digits outside of extraordinary circumstances (e.g., impeachment proceedings). The $9.8M volume, the highest in our dataset, confirms this is not a speculative outlier but a heavily traded view with significant capital at stake.

Actionable Insight & Catalysts: Traders should treat this not as a pure binary but as a volatility index for the 2025-2026 period. The 50% price suggests the market perceives two roughly equally plausible paths. Key near-term catalysts that could drive the 'Yes' probability higher include: 1) The initiation of formal impeachment proceedings by the House of Representatives, 2) A definitive adverse ruling in outstanding legal cases carrying the potential for incarceration or explicit constitutional disability, and 3) A significant deterioration in health, as historically priced for older presidents. Conversely, catalysts for a decline toward 20-30% would be the dismissal of key legal challenges, a clear failure of impeachment efforts, or a sustained period of stable governance and rising approval ratings.

Historical Context & Dislocation: The closest analogue is the 'Trump Leave Office Early' markets during his first term, which peaked near 25% during the first impeachment trial in late 2019/early 2020. The current 50% level is double that prior peak, indicating the market assesses the current confluence of legal, political, and age-related risks as substantially more severe. This dislocation between current pricing and historical precedent presents a core trading debate: is the market overreacting to headline risk, or is it correctly pricing a fundamentally novel risk environment?

Interlinked Policy & Personnel Markets

The political volatility market is directly feeding into related policy and personnel forecasts, creating a coherent narrative chain.

Fed Leadership Nexus:

• 'Powell leaves before 2026?' (Prob: 1.0%, Vol: $6.4M): This market is priced for near-certainty of continuity. The 1% probability is a rock-solid bet that Powell will serve his full term ending in May 2026.
• 'Will Trump next nominate Kevin Hassett as Fed Chair?' (Prob: 38.0%, Vol: $5.0M): This is the critical link. The 38% probability is meaningful and indicates that if a Fed Chair vacancy does occur before January 2029, the market believes Kevin Hassett (former Trump CEA chair and a known dove-leaning economist) is a leading contender. The high volume suggests traders are explicitly connecting this vacancy to a potential second Trump term, as the nomination timeline extends to 2029. The 38% is intriguingly high for a field that would typically have multiple candidates, suggesting Hassett is seen as a clear frontrunner in a Trump administration scenario.

Macroeconomic Policy Corollary:

• 'Will the Federal Reserve Hike rates by 0bps at their January 2026 meeting?' (Prob: 96.0%, Vol: $5.3M): This is an exceptionally strong consensus. The market sees virtually no chance of a hike by early 2026, aligning with the 'Fed on hold' narrative.
• 'Will there be a recession in 2025?' (Prob: 1.0%, Vol: $4.7M) & 'Will the Fed cut rates 2 times [50 bps]?' (Prob: 6.0%, Vol: $4.6M): These markets paint a picture of a soft landing fully achieved and sustained. The minuscule 1% recession probability is at odds with typical late-cycle anxiety. The 6% chance of two cuts suggests the modal path is between zero and one 25bp cut, not an easing cycle.

Synthesis: The markets are pricing a stark dichotomy: high political volatility coexisting with profound monetary policy stability. The linkage is the Hassett market, which acts as a conditional hedge: If Trump exits, Powell's position may become more secure. If Trump remains and wins in 2024, Powell's successor becomes a live issue for the 2026-2030 term. Traders believing in the 50% 'Trump out' probability should see the 1% 'Powell out' probability as a relative mispricing and could structure positions that benefit from a convergence.

High-Volume, Low-Probability Assets: Bitcoin and Sports

Markets with significant volume but low probabilities represent popular 'lottery ticket' positions or high-conviction contrarian bets.

Bitcoin Price Targets:

• 'How high will Bitcoin get this year? ($130,000+)' (Prob: 1.0%, Vol: $9.7M)
• 'How high will Bitcoin get this year? ($150,000+)' (Prob: 1.0%, Vol: $4.6M) The collective $14.3M volume across these two ultra-bullish BTC targets is staggering. A 1% probability is not a forecast; it's a cheap option on a black-swan-style rally. This volume indicates massive retail and speculative institutional interest in expressing a bullish Bitcoin view, even if the base-case probability is low. Catalysts for a probability re-rate would include unexpected regulatory clarity (e.g., spot ETF approvals beyond current expectations), a sudden acceleration in institutional adoption, or a severe devaluation in a major fiat currency.

NFL Championship Futures (2026 Season):

• San Francisco 49ers (Prob: 6.0%, Vol: $9.6M)
• New England Patriots (Prob: 13.0%, Vol: $7.1M) The volume here ($16.7M combined) exceeds that of the major political markets, highlighting the popularity of sports contracts. The probabilities reflect early, model-based forecasts. The Patriots at 13% (likely reflecting optimism around a rebuilt team and draft capital) versus the 49ers at 6% is a notable divergence given the 49ers' recent perennial contender status. This may present an arbitrage opportunity for traders who believe the market is overvaluing the Patriots' turnaround timeline relative to the 49ers' established roster strength.

Integrated Trading Strategies & Risk Factors

Strategy 1: Hedging Political Volatility with Policy Stability.

• Thesis: The 50% probability of a Trump exit is overstated relative to the 1% probability of a Powell exit. These are interrelated events.
• Action: Consider a long volatility position on 'Powell leaves' (buy at 1%) funded by a short volatility position on 'Trump leaves' (sell at 50%). This pair trade profits if the probabilities converge (e.g., Trump stability increases, reducing Hassett nomination odds, thereby reinforcing Powell's position).

Strategy 2: Expressing the 'Calm Amidst Storm' View.

• Thesis: The market is correct on macroeconomic stability (low recession, Fed on hold) but wrong on political volatility.
• Action: Sell 'Trump out' at 50%, seeing it as a rich premium. Use proceeds to buy the 'No' on recession (effectively at 99) or the '0bps hike' (at 96), though these are expensive. This is a pure macro-over-politics convergence bet.

Strategy 3: Lottery Ticket Portfolio.

• Thesis: High-volume, low-probability markets are cheap non-linear options.
• Action: Allocate a small, risk-capital portion to a basket of 1%-5% probability contracts (Bitcoin $150K, 49ers championship, Fed cuts 2x). The combined volume indicates these are not ignorable tail risks but popular expressions of high-impact scenarios.

Key Risk Factors:

1. Non-Linearity of Political Risk: A presidential exit is a binary, high-impact event that would trigger repricing across all correlated markets (Hassett nomination probability would crash, recession probability might spike). Portfolios must be stress-tested for this.
2. Market Structure Risk: All data is from Kalshi, a single venue. Liquidity and price discovery, while significant, may not reflect the full global view. Cross-venue arbitrage is not possible with this dataset.
3. Catalyst Clustering: Legal and political catalysts for the 'Trump out' market are not evenly distributed but may cluster around court dates and congressional sessions, leading to sudden, jagged probability swings.
4. Macro-Political Feedback Loop: Persistent political turmoil could itself become a macroeconomic shock, undermining the low-probability pricing in recession and Fed cut markets, creating a correlation spike.

Conclusion and Desk View

The Geopolitics Desk interprets this market constellation as signaling a primary investment theme for 2025-2026: Navigating the Dichotomy. The prediction markets are loudly announcing that the largest source of uncertainty is political succession, not the economic cycle. The profound stability priced into the Federal Reserve's path and the economic outlook is either a pillar of resilience or a complacent trap if political volatility metastasizes into financial volatility.

The 50% probability on 'Trump out this year' is the linchpin. It is too significant to ignore, yet too binary to rely upon as a base case. Sophisticated positioning should involve expressing views on the relationship between this political risk and the other, calmer markets. The high volume in low-probability Bitcoin and sports markets, while not central to the geopolitical thesis, serves as a reminder that prediction markets also function as expressive arenas for high-conviction tail-risk bets and popular sentiment.

Recommended Focus: Traders should prioritize constructing positions that profit from the convergence or divergence between the political volatility complex ('Trump out,' 'Hassett nom') and the macroeconomic stability complex ('No recession,' 'Fed on hold'). The dislocation between these two narratives, as currently priced, presents the most data-driven, actionable opportunity set on the board.

Market Analysis

Donald Trump out this year? ➡️

Current Probability: 50.0%

The central risk. Price implies a coin-flip on unprecedented modern presidential exit. Volume confirms it's the main narrative.

Kevin Hassett as next Fed Chair nominee 📈

Current Probability: 38.0%

Critical conditional market. High probability for a specific name indicates a clear succession view tied to Trump's political future.

Fed Funds Rate Hike 0bps in Jan 2026 ➡️

Current Probability: 96.0%

Near-consensus on policy stasis. Acts as the bedrock of the 'stable macro' narrative. Rich but likely correct.

Bitcoin > $130k this year ➡️

Current Probability: 1.0%

Not a forecast but a cheap call option. Extreme volume shows massive speculative interest in crypto upside tails.

Recession in 2025 📉

Current Probability: 1.0%

Priced for perfection. The most vulnerable probability if political or external shocks disrupt the soft landing.