‘A new benchmark for tracking expectations’- Fed backs prediction markets

Prediction markets have gotten a resounding endorsement from the Federal Reserve.

In a recent study of macro markets on Kalshi, the regulator found that data from the prediction market (PM) rivaled even established economic forecasting frameworks like Bloomberg Consensus. 

Compared to the Bloomberg consensus, which relies on surveys and polls that take time to be updated, the Fed hailed PM’s real-time tracking of outcome expectations as a ‘rich benchmark’. 

“Our results suggest that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.”

Prediction markets allow users to speculate on outcomes on various topics or events, and their financial incentives make them more reliable than traditional surveys or polls. 

As such, their data has become a crucial hedging and risk management tool for reliably positioning for future, uncertain events. 

States vs. CFTC

The Fed’s acknowledgement that PMs could be a better indicator than analyst consensus or Fed Fund Futures, which is used to track rate-cut expectations, sparked mixed views across the crypto community. 

Source: Federal Reserve 

Fundstrat’s Tom Lee supported the research, stating that,

“Agree that prediction markets are helpful for market insights.”

For his part, prediction markets trader Benjamin Freeman hailed the Fed’s study as a ‘great’ recognition of the predictive power of the prediction markets. 

That said, these markets have gained traction, and Wall Street players and other major firms are positioning to jump on the trend.

In fact, Bitwise and two other asset managers have filed for ETFs tracking bets on the 2026 election. 

But there is an ongoing battle between the Commodity Futures Trading Commission (CFTC) and states over who holds jurisdiction over the sector.

Although the CFTC has made a strong argument for itself on the matter, TD Cowen said the states have the upper hand. 

In a Wednesday note to investors, Jaret Seiberg, TD Cowen’s managing director, said, 

“We continue to give a slight edge to the states in this legal fight primarily because the states have historically been the regulators of sports gambling.”

According to Seiberg, the court may refer to past rulings and reinforce states’ authority if prediction markets are categorized as gambling. 

It remains unclear how these developments will impact the sector’s growth. 

Final Summary 

• The Fed established that prediction markets are better predictive tools than Bloomberg consensus or traditional surveys
• However, TD Cowen warned that states have an edge over the CFTC in the battle for jurisdiction over the sector.