Why the Fed Thinks Prediction Markets Are the New Crystal Balls

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In a shocking twist that has economists everywhere clutching their pearls, the Federal Reserve has come out with a resounding thumbs-up for prediction markets. Yes, you heard that right! The folks who usually keep their cards close to their chest are now all in on this speculative sorcery.

In a riveting recent study of macro markets on Kalshi-because apparently Kalshi is the new Hogwarts for economic forecasting-the regulator found that the data from these prediction markets (PM) rivaled even the venerable Bloomberg Consensus. Who would’ve thought? It’s like finding out your dog can actually recite Shakespeare.

Unlike the Bloomberg consensus, which is as sluggish as a tortoise trying to climb a mountain (thanks to its reliance on surveys that take longer to refresh than a Windows computer), the Fed hailed PM’s real-time tracking of outcome expectations as a ‘rich benchmark’. Well, I suppose if you can’t beat them, jump on their bandwagon!

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

Now, prediction markets allow users to bet on outcomes like they’re at a carnival game-and trust me, those financial incentives make them more reliable than your uncle’s fishing stories. With such prowess, their data has become a crucial hedging and risk management tool for people scrambling to predict the unpredictable future. Sounds a bit like trying to forecast the British weather, doesn’t it?

States vs. CFTC

The Fed’s newfound love affair with PMs-who knew there could be romance in economics?-has sparked a mixed bag of reactions across the crypto community. It’s like watching a high-stakes poker game where everyone’s holding questionable hands.

Amidst the fray, Fundstrat’s Tom Lee jumped into the ring, waving his pom-poms for the research, stating that,

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

Meanwhile, prediction markets trader Benjamin Freeman was practically doing cartwheels over the Fed’s study, hailing it as a ‘great’ recognition of their predictive magic. Meanwhile, Wall Street players are eyeing this trend like it’s the next big IPO.

In fact, Bitwise and two other asset managers are so convinced that they’ve filed for ETFs tracking bets on the 2026 election. Because why not add a dash of excitement to politics, right?

But hold onto your hats, because there’s a tussle brewing between the Commodity Futures Trading Commission (CFTC) and states over who gets to call the shots in this burgeoning sector. It’s akin to two toddlers fighting over a toy-messy and mildly entertaining.

The CFTC has made a compelling case for its jurisdiction, but TD Cowen suggests that the states might just hold the upper hand. As Jaret Seiberg, TD Cowen’s managing director, noted in a Wednesday missive to investors,

“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.”

Seiberg hints that if prediction markets are classified as gambling (surprise, surprise), courts may lean towards reinforcing state authority. Talk about a twist ending!

As we stand on the precipice of this brave new world of prediction markets, it remains a mystery how these developments will shape the future. Will they become the crystal balls of our time, or will they fizzle out like last year’s New Year’s resolutions? Only time-and perhaps a few well-placed bets-will tell.

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.

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2026-02-20 03:29