The U.S. Federal Reserve is taking a closer look at prediction markets, specifically the platform Kalshi, as a potential source of real-time economic data. Researchers at the central bank published a paper on Thursday highlighting Kalshi’s ability to forecast economic indicators, finding its predictions often outperform traditional methods.
The research indicates Kalshi’s forecasts for the federal funds rate and the Consumer Price Index (CPI) offer “statistically significant improvements” over fed funds futures and professional economic forecasts. Notably, Kalshi provides continuously updated probability distributions, offering a more nuanced view than the infrequent point estimates offered by other sources.
According to the report, Kalshi “perfectly matched the realized federal funds rate by the day of each meeting since 2022,” a level of accuracy not achieved by standard surveys or futures markets. This success may be linked to the participation of retail investors, creating a market “distinct from institutionally dominated markets,” the researchers noted.
The study also suggests prediction markets can provide unique insights into variables currently lacking market-based distributions, such as gross domestic product (GDP) growth, core inflation, unemployment, and payrolls. This capability could be particularly valuable for policymakers seeking a more comprehensive understanding of economic conditions.
The findings reach as prediction markets are increasingly focused on inflation data. Recent activity suggests these markets are anticipating cooler inflation figures ahead of the upcoming CPI release, according to reports. The potential for Kalshi data to inform Federal Reserve policy is now being actively considered, according to TradingView.
Bitget reported that the Federal Reserve’s report identifies Kalshi as a “groundbreaking real-time indicator for economic policymakers.” The implications of incorporating this alternative data source into the Fed’s analytical toolkit remain to be seen.
