A US Federal Reserve research paper praised the usefulness of prediction markets (specifically looking at Kalshi) for real-time control of economic policy.
“Kalshi’s forecasts for the federal funds rate and [the U.S. Consumer Price Index] “provide statistically significant improvements over federal funds futures and professional forecasters, while providing continuously updated full distributions rather than infrequent point estimates,” according to the paper released Thursday.
And the markets, where retail investors can buy contracts on virtually any yes-or-no question in fields as diverse as economics, politics and sports, are analyzing live topics that other information sources don’t see.
Prediction markets “provide unique information, particularly for variables such as [gross domestic product] growth, core inflation, unemployment and payrolls, for which no other market-based distributions currently exist.”
And in this study, Kalshi’s predictions “perfectly matched the federal funds rate realized on the day of every meeting since 2022, a feat that has not been achieved with either polls or futures.”
Part of the secret that distinguishes prediction markets as a useful tool may be the inclusion of retail participants, which makes them “distinct from institutionally dominated markets,” the paper notes.
