A Federal Reserve research paper praised the utility of prediction markets—specifically looking at Kalshi—for getting a real-time handle on economic policy.
“Kalshi’s Forecasts of the Federal Funds Rate and [the U.S. Consumer Price Index] provide statistically significant improvements over fed funds futures and professional forecasters, all while providing continuously updated full distributions rather than sparse point estimates,” according to the paper published Thursday.
And the markets, where retail investors can buy contracts on virtually any yes-no question in fields as diverse as economics, politics and sports, look at issues on a live basis that other sources of information do not.
Prediction markets “provide unique insights—especially for variables such as [gross domestic product] growth, core inflation, unemployment and wages for which no other market-based allocations currently exist.”
And in this study, Kalshi’s predictions “perfectly matched the realized federal funds rate on the day of every meeting since 2022, a feat not accomplished by either surveys or futures.”
Part of the secret sauce that sets prediction markets apart as a useful tool may be the inclusion of retail participants, making them “separate from institutionally dominated markets,” the paper noted.
