A new report from the Federal Reserve indicates that prediction markets can be a valuable tool for researchers and policymakers in terms of providing rich, frequently updated probabilities regarding future central bank policy decisions and estimates on economic data releases. The report specifically examined prediction markets on Kalshi and compared their predictive powers to more traditional options, such as surveys and forecasts implied by other markets.
According to the report, one key benefit of Kalshi’s prediction markets is its responsiveness to new information. For instance, the implied probability of a rate cut at the July 2025 Federal Open Market Committee (FOMC) meeting rose to 25% following remarks from Governors Waller and Bowman, before falling after a stronger-than-expected June employment report. This pattern is representative of the broader high-frequency responsiveness observed and highlights how Kalshi can reveal rich intraday dynamics often missed in daily data, which enables policymakers to gauge market reactions to events like FOMC announcements or economic releases.
In terms of forecast accuracy, the Federal Reserve report finds that Kalshi’s prediction markets provide comparable or sometimes superior predictions to traditional benchmarks like surveys and other derivatives markets. For example, Kalshi showed a statistically significant edge over Bloomberg Consensus estimates for headline Consumer Price Index (CPI) data. Additionally, Kalshi markets outperformed fed funds futures in forecasting federal funds rate decisions.
“Kalshi’s forecasts for the federal funds rate and CPI provide statistically significant improvements over fed funds futures and professional forecasters, all while providing continuously updated full distributions rather than infrequent point estimates,” reads the report.
To be clear, the Federal Reserve report positions Kalshi’s markets as a useful addition to the toolkit for economic forecasting, rather than a replacement for traditional methods like surveys or derivatives. It also highlights some flaws in prediction markets. For instance, it calls out issues like risk premia—essentially a distortion where the implied probabilities don’t perfectly match real-world odds because traders, especially the kinds of retail traders found amongst Kalshi’s userbase, bake in their own aversion to risk—and noisy estimates from markets with low trading volume, especially in the extreme outcomes or “tails” of predictions. That said, the report suggests that common worries about market manipulation might be overstated, noting that even in its presence, prediction markets can still yield reliable forecasts.
This latest report from the Federal Reserve also follows an article from The New York Times last week, which included quotes from multiple economists praising the effectiveness of prediction markets. The New York Times report also cited a paper from the National Bureau of Economic Research that found Kalshi’s markets were roughly as accurate as those who demand high salaries to make such forecasts, and another paper from the London Business School and Yale University found that markets found on another prediction market platform, Polymarket, provide strictly better accuracy than the professionals. “Getting information from a large pool of people can be a remarkably good form of forecasting,” said Johns Hopkins Economics Professor Jonathon Wright.
While all of this research indicates prediction markets can be valuable tools for measuring the likelihood of future events, the reality is the vast majority of the profits for these prediction markets currently come from outright sports gambling, which is at the heart of an ongoing power struggle between states and the CFTC, a federal regulator, in terms of how these startups should be regulated. There are also concerns over various instances of apparent insider trading on all kinds of markets, from the capture of former Venezuelan President Nicolás Maduro to Google Trends data releases, although purists would make the argument that trading on insider information is part of what makes them so useful as an accurate forecaster of future events.
As is the case with most things in life, the reality of what’s going on with prediction markets is complicated, as it appears to be both powering degenerate sports gambling and providing useful data to the world on the probability of future events.
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