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A new Federal Reserve study adds a fresh angle to the debate around prediction markets. Researchers say Kalshi may offer useful real-time signals on inflation, interest rates, unemployment, and GDP, even while legal and political pressure around the platform keeps building.
Good to Know
Kalshi does not sit under direct Federal Reserve oversight. That job belongs to the US Commodity Futures Trading Commission. Still, a recent paper shows economists tied to the central bank are paying close attention to event contracts as a research tool.
The 40-page report, Kalshi and the Rise of Macro Markets, was co-authored by Anthony Diercks, principal economist of the Board of Governors for the Federal Reserve System, along with Jared Dean Katz of Northwestern and Jonathan Wright of Johns Hopkins University. Researchers focused only on Kalshi because, as they wrote, “Kalshi represents the most mature and comprehensive prediction market for economic forecasting”.
That conclusion matters because the wider fight around prediction markets has focused far more on politics and sports betting than on macroeconomic forecasting. Yet in the paper, researchers argue Kalshi may help fill gaps left by polls, surveys, and traditional futures markets.
“Using newly available contracts across a broad set of macroeconomic indicators, we have shown that Kalshi-implied distributions are well-behaved, responsive to news, and comparable in forecasting accuracy to established benchmarks such as the Survey of Market Expectations and the Bloomberg consensus,” authors wrote.
“In several cases, they provide unique insights—particularly for variables like GDP growth, core inflation, unemployment, and payrolls, for which no other market-based distributions currently exist.”
Researchers also pointed to one case where Kalshi better reflected the eventual size of a Federal Reserve rate cut than more established forecasting models. In that example, Kalshi leaned harder toward a 50-basis-point cut, and that call proved right.
At the same time, researchers flagged weak spots. Thin activity in far-out contracts can create noisy pricing, especially in tail outcomes. Even so, authors argued those problems are common across derivative markets and not limited to Kalshi.
“Prediction markets offer high-frequency, continuously updating forecasts that can complement central bank decision-making,” the report said. “High-frequency data let us apply an event study methodology to see how news shapes beliefs about macroeconomic indicators.”
“For macroeconomic indicators like CPI and unemployment—two pillars of the Federal Reserve’s dual mandate—market-based forecasts improve the Fed’s ability to communicate policy direction and assess the market’s perceived reaction function under various scenarios.”
Here is the tension at the center of the story. Kalshi may be gaining credibility as a macro market tool, but sports contracts still appear to fund much of that growth.
Periodic trading reviews show sports can make up more than 80% of platform business. One example in the original report compared more than $24 million wagered on a Duke University–Siena University NCAA tournament game with about $2.7 million on the next Fed decision. Without retail traders chasing sports and pop culture markets, macro contracts would likely attract much less liquidity.
That matters for research quality. If sports products disappear, volume could fall sharply, which would weaken pricing depth in Fed, inflation, and unemployment markets. Researchers acknowledged that risk, noting that the retail base may alter risk premia and that low-volume contracts can create messy estimates.
Meanwhile, Kalshi keeps growing. After helping open the door for political contracts during the 2024 election cycle through a legal win against the CFTC, the company became one of the main names in the US prediction market sector. It has also faced lawsuits in state and federal courts, and Arizona recently filed criminal charges against the platform. Even with that pressure, Bloomberg reported on Thursday that Kalshi raised more than $1 billion in a new funding round at a $22 billion valuation.
Broader uncertainty in Washington adds another layer. Jerome Powell remains in conflict with President Donald Trump over interest rate policy, while Kevin Warsh still awaits a confirmation hearing. Senator Thom Tillis may delay proceedings, and Powell appears set to stay until Warsh is confirmed. That unresolved timeline could keep debate around macro prediction markets alive as midterm season gets closer.