A recent paper published by the Federal Reserve has found that prediction markets, specifically those on the regulated platform Kalshi, can be as accurate as professional forecasts in predicting key macroeconomic events. The research, part of the Finance and Economics Discussion Series, compared Kalshi's market-implied forecasts against traditional methods like economist surveys and Fed funds futures.
The study revealed that Kalshi's forecasts for the federal funds rate 150 days ahead had a mean absolute error "very similar to that of professional forecasters." Crucially, the platform offers a continuously updating, full distribution of probabilities in real-time, unlike surveys which provide a static snapshot every six weeks. The paper's authors—Anthony M. Diercks, Jared Dean Katz, and Jonathan H. Wright—noted that Kalshi has correctly predicted every Federal Open Market Committee (FOMC) interest rate decision since 2022, with smaller errors than futures-based forecasts.
Kalshi's accuracy extended beyond interest rates to other key indicators. The platform's Consumer Price Index (CPI) forecasts were found to be more accurate than Bloomberg's projections, and it also showed strong performance in predicting unemployment and GDP estimates. The researchers highlighted that prediction markets react swiftly to new economic data and central bank signals, providing policymakers with a high-frequency benchmark for market sentiment.
The paper also touched on the regulatory landscape, noting Kalshi's advantage of being fully regulated by the Commodity Futures Trading Commission (CFTC). In contrast, competitor Polymarket operates in a legal gray area, though it was noted to have similar market depth for some key predictions, such as Fed decisions, with a volume of $138 million. The CFTC, under Chair Michael Selig, has asserted jurisdiction over such prediction platforms.
Market participants welcomed the findings. Kalshi co-founders Tarek Mansour and Luana Lopes Lara called the results "fantastic," while Paradigm founder Matt Huang pointed out Kalshi's lower forecast errors compared to futures markets. The analysis suggests that regulated prediction markets are gaining credibility as a real-time tool for interpreting economic signals.
