Fed Research Paper Highlights Significant Analytical Value of Prediction Markets

Odaily News Federal Reserve researchers have released a new paper that highly praises the role of prediction markets in economic analysis, specifically highlighting a study on the performance of the prediction platform Kalshi.

The report points out that Kalshi's predictions regarding the federal funds rate and the U.S. Consumer Price Index (CPI) statistically outperform federal funds futures and professional economist forecasts. It can also provide continuously updated full probability distributions, rather than traditional intermittent point forecasts.

The study also suggests that prediction markets provide unique market-based distribution data for areas such as GDP growth, core inflation, unemployment rates, and non-farm payrolls. These variables previously lacked comparable market pricing tools. Since 2022, Kalshi's predictions for Federal Open Market Committee (FOMC) meeting outcomes on the federal funds rate have been completely consistent with the actual results.

The report notes that a major advantage of prediction markets lies in the participation of retail investors, distinguishing them from traditional financial markets dominated by institutions. This gives them unique value in information aggregation and real-time reflection of market expectations.