Federal Reserve researchers argue Kalshi prediction market can more accurately gauge macroeconomic expectations in real time across the United States

Three economists at the Federal Reserve Board are making waves by suggesting that a prediction market platform called Kalshi could offer a sharper, more immediate read on the U.S. economy than traditional tools like surveys or financial derivatives.

Their paper, Kalshi and the Rise of Macro Markets, was released on February 12 and is generating discussion among policymakers and market watchers alike.

The authors — Federal Reserve principal economist Anthony Diercks, research assistant Jared Dean Katz, and Johns Hopkins associate Jonathan Wright — examined how Kalshi data compares to existing methods for predicting macroeconomic outcomes, particularly how expectations shift after economic news or Federal Reserve statements.

Why Kalshi Stands Out

According to the researchers, one of Kalshi’s major advantages is speed.

While traditional surveys are slow and derivatives may be complex or opaque, Kalshi provides “high-frequency, continuously updated, distributionally rich” data.

In other words, it shows what market participants actually believe in real time.

“Managing expectations is central to modern macroeconomic policy.

Yet the tools that are often relied upon — surveys and financial derivatives — have many drawbacks,” the paper notes.

“Kalshi markets provide a direct window into beliefs, updating continuously as events unfold.”

How Kalshi Works for Macroeconomics

On Kalshi, traders can bet on a range of economic outcomes tied to Federal Reserve decisions.

This includes metrics like the consumer price index, payroll figures, GDP growth, and even commodities like gas prices.

The idea is that the collective betting behavior encodes a probability of various economic outcomes.

The Fed researchers argue that this data could be used to construct a risk-neutral probability density function, which essentially maps out all potential outcomes of Federal Open Market Committee (FOMC) decisions and their likelihoods.

Currently, they say, benchmark methods are “too far removed from the monetary policy interest rate decision” to provide a clear picture.

Real-Time Reactions Highlight Kalshi’s Potential

Kalshi’s strength lies in its intraday responsiveness.

For example, the implied probability of a rate cut in July jumped to 25% after comments from Federal Reserve Governors Christopher Waller and Michelle Bowman, only to retreat after a stronger-than-expected June jobs report.

“These probabilities respond sharply and sensibly to major developments,” the researchers wrote.

“Kalshi provides the fastest-updating distributions currently available for many key macroeconomic indicators.”

This makes it potentially invaluable for economists trying to gauge immediate market sentiment following policy announcements.

Prediction Markets on the Rise

Prediction markets, fueled in part by cryptocurrency platforms, have become a hot sector over the past year.

Monthly trading volumes on platforms like Kalshi and Polymarket have consistently exceeded $10 billion.

Despite regulatory scrutiny from some state authorities, these platforms are aggressively targeting retail users and gaining traction as alternative tools for forecasting economic events.

Kalshi’s model, in particular, offers a nimble alternative to slower, more cumbersome tools — making it a compelling option for researchers and potentially even policymakers looking for real-time insights.

Limitations and Current Status

It’s important to note that Federal Reserve research papers are “preliminary materials circulated to stimulate discussion.” They do not directly influence Fed policy.

Nevertheless, the paper signals a growing interest within the Fed in exploring innovative, market-driven methods for tracking expectations, a conversation likely to continue as prediction markets expand.

What’s Next?

The discussion around incorporating Kalshi into Federal Reserve analysis is just beginning.

Researchers, policymakers, and market participants will likely debate its accuracy, reliability, and regulatory implications.

As trading volumes and participation increase, the Fed may consider pilot programs or analytical studies to see if these markets can complement traditional surveys and forecasts.

Meanwhile, regulators will continue to monitor platforms like Kalshi and Polymarket for compliance with financial and gambling laws.

For economists and investors, keeping an eye on Kalshi could provide an early signal of market sentiment ahead of official economic releases or FOMC decisions.

Summary

Federal Reserve economists Anthony Diercks, Jared Dean Katz, and Jonathan Wright suggest that the prediction market Kalshi offers a faster, more accurate measure of macroeconomic expectations than traditional surveys and derivatives.

Their February 12 paper highlights Kalshi’s ability to provide high-frequency, continuously updated insights into consumer prices, payroll data, GDP growth, and other economic indicators.

While still preliminary, the research recommends using Kalshi to construct risk-neutral probability distributions for FOMC decisions.

As prediction markets grow and regulators keep watch, Kalshi may become a key tool for real-time economic analysis.