Can Kalshi Predict the Economy Better Than the Fed’s Current Tools?

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• Fed-linked economists say prediction markets may track expectations faster than surveys.
  
• Kalshi’s real-time probabilities could help interpret policy signals more clearly.
  
• Prediction markets are growing rapidly but still face regulatory scrutiny.

A new paper from economists linked to the Federal Reserve suggests that prediction markets may offer a faster and more responsive way to track economic expectations than traditional tools. The researchers argue that platforms such as Kalshi could help policymakers better understand how markets interpret incoming data and central bank signals in real time.

The study, released Feb. 12, compares Kalshi’s event-based contracts with surveys and derivatives markets, which have long been used to estimate future inflation, employment, and interest rate trends. According to the authors, prediction markets capture collective beliefs directly rather than inferring them indirectly from pricing models or delayed responses.

Real-Time Signals for Policymakers

The researchers found that Kalshi’s markets react quickly to macroeconomic news and policy commentary. For instance, the probability of a summer rate cut shifted notably after public remarks from Fed governors, including Christopher Waller and Michelle Bowman, before reversing after strong labor data was released.

This rapid adjustment, they argue, highlights one of prediction markets’ biggest advantages: high-frequency updates that reflect shifting sentiment almost instantly. Traditional surveys, by contrast, often lag behind events, while derivatives-based measures can be difficult to interpret.

The paper also proposes using Kalshi data to build probability distributions around Federal Open Market Committee decisions, which could give policymakers a clearer view of how markets price potential rate paths.

Growing Role of Prediction Markets

Prediction markets have surged in popularity over the past year, with monthly trading volumes surpassing $10 billion across platforms. Alongside Kalshi, competitors such as Polymarket have expanded aggressively, targeting retail traders interested in betting on political and economic outcomes.

However, regulatory uncertainty remains a challenge. Some state authorities have moved to restrict prediction market activity, raising questions about how widely such tools can be adopted in official policymaking frameworks.

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The authors emphasize that their findings are exploratory and do not represent official Fed policy. Still, they argue that prediction markets provide valuable supplementary insights into economic expectations that policymakers should not ignore.

While surveys and financial models remain central to economic forecasting, the research suggests prediction markets could become an important complementary tool. If adopted more broadly, platforms like Kalshi may help central banks interpret market expectations with greater speed and clarity — a shift that could influence how future policy signals are assessed.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.