Federal Reserve Paper Backs Kalshi as Real-Time Economic Barometer

A new Federal Reserve study finds that Kalshi’s prediction markets match — and sometimes outperform — traditional economic forecasts, while offering real-time insight into inflation and interest rate expectations.

A new Federal Reserve working paper has concluded that Kalshi’s markets provide a credible, real-time benchmark for tracking inflation, unemployment, and Federal Reserve rate expectations. In some cases, they even outperform traditional forecasting tools.

In “Kalshi and the Rise of Macro Markets”, the authors write:

“Our results suggest that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.”

According to the paper, Kalshi’s key advantages include:

• Real-time updating, unlike surveys released at set intervals
• Full probability distributions, not just single-point forecasts
• Competitive — and sometimes superior — forecast accuracy
• Coverage of macro events where no liquid options markets exist
• Event-level sensitivity to economic news and policy signals
• Probabilities that generally match real-world outcomes

The paper evaluates Kalshi-implied forecasts against Bloomberg consensus estimates, Fed Funds futures, SOFR options, and the New York Fed’s Survey of Market Expectations (SME).

Competitive Forecast Accuracy — and Better at Times

The paper concludes that for Federal Open Market Committee (FOMC) rate decisions, Kalshi performs on par with professional forecasters:

“For the federal funds rate forecasts 150 days (3 FOMC meetings) ahead, Kalshi’s mean absolute error is very similar to that of professional forecasters.”

As the decision date gets closer, Kalshi can even outperform traditional tools:

“We find the Kalshi median and mode have a perfect forecast record on the day before the FOMC meeting, which represents a statistically significant improvement over the fed funds futures forecast.”

For the headline Consumer Price Index (CPI), the study finds that Kalshi provides “a statistically significant improvement” over Bloomberg. Meanwhile, for core CPI and unemployment, Kalshi performs statistically similarly to Bloomberg.

Headline CPI measures changes in consumer prices across the whole basket of goods and services, including food and energy. Core CPI excludes food and energy, which makes it less affected by sharp swings in gas or grocery prices.

Offering What Other Markets Can’t

The paper argues that Kalshi provides information that other markets can’t: it shows all possible outcomes and how likely each is. It also updates those probabilities in real time. Meanwhile, tools such as Bloomberg and SME are updated at set intervals.

“Kalshi uniquely extends this to other headline macro indicators at high frequency while providing a more retail-investor perspective.”

The paper also notes that tools like Fed Funds futures often assume only two possible outcomes, while Kalshi allows for many potential outcomes and shows the probability of each.

This gives researchers a clearer picture of specific events, such as a Federal Reserve meeting, a CPI report, GDP growth, or unemployment data. For some of these indicators, there are no active options markets that provide this level of detail.

Tracking Rate Expectations in Real Time

One of the paper’s main findings is that Kalshi shows not only what markets expect, but also how confident they are in those expectations.

The authors found that after new inflation data is released, markets quickly adjust their rate expectations and level of uncertainty. In simple terms, once new data comes out, markets feel more certain about the path ahead.

The paper also finds that markets react more strongly to bad inflation surprises than to good ones:

“We uncover an asymmetry with respect to the first moment, where positive shocks to CPI lead to much larger responses in the mean of the fed funds rate when compared to negative CPI shocks.”

In practical terms, when inflation comes in higher than expected, interest rate expectations rise sharply. When inflation comes in lower than expected, expectations do not fall as much.

The paper notes that traditional surveys, which are periodically updated, cannot capture real-time shifts in expectations and uncertainty.

Are the Probabilities Reliable?

The paper also examines the reliability of these prediction markets.

The authors conclude that while traders might overestimate the likelihood of worse outcomes (such as higher inflation), the overall probabilities “appear to be fairly well calibrated” with what actually happens.

Could Prediction Markets Become a Policy Tool?

The authors frame prediction markets as analytical tools:

“The availability of credible, liquid markets for macro variables now enables a direct, incentive-compatible lens on expectations—one that avoids many of the limitations of existing proxies.”

If adopted more widely, the paper suggests prediction markets could become a regular tool for tracking economic expectations in real time.

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