Federal Reserve Study: Prediction Market Kalshi Could Be a Superior Tool for Macroeconomic Forecasting

Feb. 19 — Three Federal Reserve Board researchers argue the prediction market Kalshi outperforms existing tools for real-time macroeconomic expectation tracking and should be integrated into Fed decision-making. Titled *Kalshi and the Rise of the Macro Market*, the paper was published Feb. 12 by Fed Board Chief Economist Anthony Diercks, Fed Research Assistant Jared Dean Katz, and Johns Hopkins Research Assistant Jonathan Wright. The study pitted Kalshi’s data against traditional surveys and market-implied forecasts to analyze how market expectations of future economic outcomes shift in response to macro news and policymakers’ remarks. “Managing expectations is central to modern macroeconomic policy—but the tools we typically rely on (surveys and financial derivatives) have major flaws,” the researchers noted. They added Kalshi captures market “beliefs” directly and in real time, and its market offers a high-frequency, continuously updated, information-rich benchmark useful for both researchers and policymakers. “Overall, Kalshi should be used to generate a risk-neutral probability density function for Federal Open Market Committee (FOMC) decisions at specific meetings,” they argued, noting current benchmarks “are too disconnected from monetary policy rate decisions.” The Fed emphasized the paper is only “preliminary material distributed to spark discussion” and will not impact the central bank’s decisions. The Fed highlighted Kalshi’s “rich intraday dynamics” as a key advantage for tracking macro expectations. “These probabilities respond quickly and reasonably to major developments,” the researchers said, citing an example: the implied probability of a July rate cut rose to 25% after Fed Governors Christopher Waller and Michelle Bowman’s speeches, then fell after the June jobs report beat expectations. They added Kalshi offers the fastest-updating distribution available for many key macro indicators.