Fed Research Finds Kalshi Markets Outperform Wall Street Surveys

Despite endless debates over where gambling ends and predicting begins, a new Federal Reserve Board paper finds that prediction markets often pick up shifts in expectations faster — and sometimes even more accurately — than traditional tools.

The study, published by the Federal Reserve on Wednesday, Feb. 18, focused on prediction market Kalshi, comparing it with more traditional survey and market-implied forecasts and examining how expectations respond to macroeconomic and financial news.

When compared to standard benchmarks, the paper found that “Kalshi’s forecasts for the federal funds rate and CPI provide statistically significant improvements over fed funds futures and professional forecasters.” The authors also note that for inflation, Kalshi’s numbers often beat the consensus survey forecasts.

“The mode of the Kalshi distribution, for example, has perfectly matched the realized federal funds rate by the day of each meeting since 2022, a feat not achieved by either surveys or futures,” the paper says.

In tougher economic scenarios, Kalshi puts “far more weight on extreme inflation and weak growth than surveys,” the researchers add, suggesting that prediction markets are more sensitive to risks such as recession or runaway inflation.

The paper flags that Kalshi’s retail investor base “may alter its risk-premia properties,” but concludes that prediction markets are best seen as a supplement, not a replacement.

As The Defiant reported earlier, daily trading volume across Polymarket and Kalshi hit $400 million for the first time earlier in February, with sports and political markets drawing nearly all the liquidity.

According to data from Artemis, open interest across platforms, Polymarket, Kalshi, Limitless, Opinion, and others, jumped above $1.1 billion for the first time on Feb. 7, setting a new all-time high.