On Kalshi, traders can buy and sell event contracts on where the Federal Reserve sets interest rates, but how accurate are these markets in predicting interest rates one month before the Fed is scheduled to meet?
The Federal Reserve promotes national economic goals through several tools at its disposal, one of them being the “federal funds rate,” which is the interest rates that financial institutions lend their excess reserves overnight. Changes in the federal funds rate set off a chain of economic events affecting unemployment and inflation. The Federal Open Market Committee (FOMC) of the Federal Reserve meets eight times per year to determine the federal funds rate.
Kalshi traders buy and sell binary option contracts: an event either happens or does not happen (Yes or No). A correct prediction receives $1/contract, and a wrong prediction receives $0/contract. The contract prices can indicate what traders believe is the probability of the event happening. Unlike prediction markets, Kalshi is a federally regulated exchange for event contracts. These contracts are considered a type of asset class, and insider trading is prohibited. Markets on Kalshi vary by the number of contracts offered and the length of time events are open.
Kalshi offers contracts on whether the upper bound of the target federal funds rate will exceed a certain level, with the event outcome being determined by the Federal Reserve’s website. For example, Kalshi offered one contract for the July 2021 FOMC meeting: whether the upper bound of the federal funds rate would exceed 0.25% and the result was “No.”
Below we’re examining the accuracy of Kalshi traders in predicting the federal funds rate by looking at the daily high and low “Yes” prices of the Kalshi’s contracts for each FOMC meeting. Events are organized by the dates of the meeting. Contract prices are listed in cents. Due to changes in Kalshi’s market naming taxonomy, both the current (“Market Name”) and old (“Old Name”) market names are listed where applicable. Data is taken from Kalshi Market Data.
July 27-28, 2021
Kalshi Federal Reserve interest rate market “Yes” contract prices on July 2, 2021, when it opened a few weeks before the Fed July 2021 meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-21JUL-T0.25 | FED-0001 | >0.25% | 8 | 1 | No |
September 21-22, 2021
Kalshi Federal Reserve interest rate market “Yes” contract prices on August 22, 2021, one month before the September 2021 Fed meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-21SEP-T0.25 | FED-002 | >0.25% | 2 | 2 | No |
December 14-15, 2021
Kalshi Federal Reserve interest rate market “Yes” contract prices on November 16, 2021, one month before the December 2021 Fed meeting and the day it opened:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-21DEC-T0.25 | FED-003 | >0.25% | 8 | 4 | No |
No trading volume was listed for FED-21DEC-T0.25 on November 15th when the market opened, so we’re using the following day’s data.
January 25-26, 2022
Kalshi Federal Reserve interest rate market “Yes” contract prices on December 27, 2021, roughly one month before the January Fed meeting and the date the FED-22JAN-T0.25 market opened:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-22JAN-T0.25 | FED-004 | >0.25% | 31 | 9 | No |
March 15-16, 2022
Kalshi Federal Reserve interest rate market “Yes” contract prices on February 16, 2022, one month before the March Fed meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-22MAR-T0.25 | FED-005 | >0.25% | 97 | 94 | Yes |
| FED-22MAR-T0.5 | FED-015 | >0.5% | 43 | 34 | No |
| FED-22MAR-T0.75 | FED-043 | >0.75% | 4 | 2 | No |
May 3-4, 2022
Kalshi Federal Reserve interest rate market “Yes” contract prices on April 4, 2022, one month before the May Fed meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-22MAY-T0.25 | FED-006 | >0.25% | 99 | 99 | Yes |
| FED-22MAY-T0.5 | FED-016 | >0.5% | 98 | 98 | Yes |
| FED-22MAY-T0.75 | FED-017 | >0.75% | 73 | 65 | Yes |
| FED-22MAY-T1 | FED-018 | >1.00% | 1 | 1 | No |
June 14-15, 2022
Kalshi Federal Reserve interest rate market “Yes” contract prices on May 15, 2022, one month before the June Fed meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-22JUN-T0.25 | FED-007 | >0.25% | 99 | 99 | Yes |
| FED-22JUN-T0.5 | FED-014 | >0.5% | 99 | 99 | Yes |
| FED-22JUN-T0.75 | FED-019 | >0.75% | 99 | 99 | Yes |
| FED-22JUN-T1 | FED-020 | >1.00% | 98 | 98 | Yes |
| FED-22JUN-T1.25 | FED-040 | >1.25% | 94 | 94 | Yes |
| FED-22JUN-T1.50 | FED-22JUN-T1.50 | >1.50% | 9 | 9 | Yes |
| FED-22JUN-T1.75 | FED-22JUN-T1.75 | >1.75% | 1 | 1 | No |
The FED-22JUN-T1.50 market is the only time Kalshi traders have “missed” one month out from an FOMC meeting. The chart below shows how traders didn’t anticipate the upper bound of the target federal funds rate exceeding 1.50% until June 13th:
July 26-27, 2022
Kalshi Federal Reserve interest rate market “Yes” contract prices on June 27, 2022, one month before the July Fed meeting:
| Market Name | Old Name | Rate | High | Low | Result |
| FED-22JUL-T0.25 | FED-008 | >0.25% | 99 | 99 | Yes |
| FED-22JUL-T0.5 | FED-021 | >0.5% | 96 | 96 | Yes |
| FED-22JUL-T0.75 | FED-022 | >0.75% | 98 | 98 | Yes |
| FED-22JUL-T1 | FED-023 | >1.00% | 99 | 99 | Yes |
| FED-22JUL-T1.25 | FED-041 | >1.25% | 99 | 99 | Yes |
| FED-22JUL-T1.50 | FED-22JUL-T1.50 | >1.50% | 92 | 92 | Yes |
| FED-22JUL-T1.75 | FED-22JUL-T1.75 | >1.75% | 99 | 99 | Yes |
| FED-22JUL-T2.00 | FED-22JUL-T2.00 | >2.00% | 97 | 95 | Yes |
| FED-22JULY-T2.25 | FED-22JULY-T2.25 | >2.25% | 79 | 77 | Yes |
| FED-22JULY-T2.50 | FED-22JULY-T2.50 | >2.50% | 8 | 6 | No |
| FED-22JUL-T2.75 | FED-22JUL-T2.75 | >2.75% | 2 | 2 | No |
Summary
Using a threshold of $0.50 on “Yes” contract prices,” Kalshi traders correctly predicted the federal funds rate one month before an upcoming FOMC meeting in 28 out of 29 markets.
The lone market traders missed was the June 2022 meeting (FED-22JUN-T1.50) when they incorrectly bet against the federal funds rate upper bounds exceeding 1.50% However, it should be noted that economists polled by Reuters missed it as well.
More detailed forecasts can be found on Kalshi’s Fed Forecast page.
Caveats
- This analysis only uses the “Yes” contract prices from Kalshi market data.
- The high and low “Yes” contract prices for the day don’t reflect the closing price, average price, or any trading volume for that day. In some circumstances, the prices reflect the bid-ask spread.
- One month before the FOMC meeting is an arbitrary period, and even then, it was inconsistent due to the varying number of days in months.