Federal Reserve Researchers Validate Prediction Markets as Forecasting Tool

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A new working paper from the Federal Reserve's Finance and Economics Discussion Series provides the most rigorous empirical validation to date of prediction markets as a tool for measuring macroeconomic expectations. The central finding is that prediction markets perform as well as, and in some cases better than, traditional forecasting instruments that central banks and market participants have relied on for decades.

Why it matters

The Federal Reserve's own research staff has now documented that prediction markets produce useful forecasts, fill gaps left by existing instruments, and respond efficiently to news. This provides institutional validation for regulators weighing the permissibility of event contracts tied to economic indicators, and positions prediction markets as a credible, real-time complement to surveys and derivatives for tracking macroeconomic expectations.

The details

The FEDS paper examines prediction market contracts covering consumer price inflation, unemployment rate, nonfarm payrolls, GDP growth, and FOMC decisions. It finds that prediction market forecasts for the federal funds rate perform on par with the Fed's own primary dealer survey, and that for headline CPI, prediction markets produce significantly smaller forecast errors than the Bloomberg consensus. The paper also notes that prediction markets are the only source of market-based forecasts for core inflation, unemployment and nonfarm payrolls.

• The FEDS paper was published on February 12, 2026.
• The paper examines prediction market data spanning several years.

What’s next

The Federal Reserve authors intend to make the underlying data publicly available, a step that will further normalize prediction market data as a standard input to policy and investment analysis.