Figure 1: FOMC Federal Funds Rate Forecast Errors
Comparison
This figure compares the mean absolute errors from 160 days out
to each FOMC for the effective federal funds rate since 2022. The
vertical bars reflect one-half standard deviation for the forecast
errors for the Survey of Market Expectations and correspond to when the
surveys were completed.
Line graph comparing the mean absolute prediction errors for federal funds rate forecasts from different sources (Kalshi mean, median, mode, Survey of Market Expectations, and fed funds futures) plotted against days before FOMC meetings. The graph shows forecast errors declining as the meeting approaches, with Kalshi's median and mode achieving perfect forecast accuracy one day before meetings. Vertical bars represent standard deviation ranges for survey errors. The x-axis ranges from 160 to 0 days before meetings, while the y-axis shows error magnitude from 0 to 0.25 percentage points.
Figure 2: Volume Heatmap for Kalshi Federal Funds Rate
Forecasts
This chart shows the volume for each strike price for each
meeting as of June 2025. Each box is shaded based on the level of
volume, with darker boxes corresponding to greater volume.
Heat map displaying trading volumes for federal funds rate contracts on Kalshi from 2021 to 2025. The vertical axis shows interest rate levels (0.25% to 6.50%), while the horizontal axis shows dates. Darker shades represent higher trading volumes, with recent periods showing significantly darker shading for certain rate levels. The heatmap reveals volume concentration around specific rate outcomes and increasing overall market liquidity over time, with some contracts exceeding one million in volume.
Figure 3: Volume Time Series for Kalshi Federal Funds Rate Markets (Log
Scale)
The chart shows the total volume for each FOMC meeting based on
the log scale dating back to 2021. These values reflect the sum of the
markets for the Federal Funds Rate Decision and the Federal Funds Target
Rate.
Logarithmic scale line chart showing total trading volume for each FOMC meeting on Kalshi from 2021 to 2025. The y-axis uses a logarithmic scale to accommodate the wide range of volumes. The chart demonstrates substantial growth in trading activity over time, with recent peaks approaching 100 million in volume for the September FOMC meeting. Values reflect combined volumes for Federal Funds Rate Decision and Federal Funds Target Rate markets.
Figure 4: Fed Funds Rate for December 2025 contract
The prices shown in this figure were captured on July 22, 2025.
The underlying contract is for determining the federal funds rate in
December. In this market, the upper bound of the range is considered
when evaluating the outcome. The “Above 4.25" outcome corresponds to the
target range or no further rate cuts by December 2025, as of the time
the image was captured.
Screenshot of the Kalshi trading interface for the December 2025 federal funds rate contract as captured on July 22, 2025. The interface shows price levels for different potential rate outcomes, with the probability of rates exceeding 4.25% trading at $0.22, and the probability of rates exceeding 4.0% trading at $0.40, implying an 18% probability the Fed Funds rate will fall between 4.0% and 4.25%.
Figure 5: FOMC Federal Funds Rate Comparisons
The chart on the left shows the federal funds rate projections
for the period following the December 2024 FOMC meeting. OIS YE 2024
corresponds to the overnight index swap rate for the end of 2024. The
PDS Median path of modes corresponds to the Survey of Market
Expectations median of modal path projection for the federal funds rate.
The chart on the right shows similar projections for the June 2025 FOMC
meeting.
Two-panel chart comparing federal funds rate projections from multiple sources. Left panel shows projections following the December 2024 FOMC meeting from Kalshi mean (red line), overnight index swap rates, Survey of Market Expectations, and fed funds futures, with notable decline in late July. Right panel shows similar projections for the June 2025 FOMC meeting, highlighting that Kalshi mean maintained higher rates in early April, which proved accurate as events unfolded.
Figure 6: Probability of Most Likely Rate Outcome Before July 2025
FOMC
The chart shows the probability of the most likely outcome for
the July 2025 FOMC (blue line), in this case for no rate change. The
rest of the historical distribution in terms of the 25th to 75th
percentile is shown in gray, with the dashed black line reflecting the
median.
Time series chart showing how the probability of no rate change (the most likely outcome) for the July 2025 FOMC meeting evolved over the 35 days leading to the meeting. The blue line represents the actual probability, which declined following comments from Federal Reserve Governors Waller and Bowman, reached a low below 80%, then rebounded above 90% after the June Nonfarm Payrolls report. The chart includes gray shading showing the historical 25th-75th percentile range and a dashed median line for context.
Figure 7: Kalshi CPI Comparisons to Bloomberg Consensus
The chart on the left shows the year-over-year May 2025 CPI
projection coming from the Kalshi market and the Bloomberg consensus.
The chart on the right shows the year-over-year April 2025 CPI
projection.
Two-panel chart comparing CPI projections. Left panel shows year-over-year May 2025 CPI projections from Kalshi (continuous line) versus Bloomberg consensus (single point), demonstrating downward drift following lower-than-expected April CPI. Right panel shows April 2025 CPI projections with similar alignment between sources. The chart highlights Kalshi's advantage in providing continuous updates versus Bloomberg's single pre-release estimate.
Figure 8: Year of 2025 Comparisons
The chart on the left shows the year of 2025 CPI inflation
projection for Kalshi, a one-year inflation swap, and the Blue Chip
Economic Indicators consensus expectation for the year 2025. The chart
on the right shows the real GDP growth projections for 2025 from Kalshi,
the Survey of Market Expectations, and the Blue Chip Economic
Indicators. Also included is the TIPS real 2-year yield as a proxy for
real growth.
Two-panel chart comparing economic projections for 2025. Left panel shows CPI inflation projections from Kalshi implied mean (red line), one-year inflation swap (black line), and Blue Chip Economic Indicators consensus, all showing close alignment. Right panel displays real GDP growth projections from Kalshi, Survey of Market Expectations, Blue Chip consensus, and TIPS 2-year real yield (as a growth proxy), showing a consistent decline of about one percentage point from early year followed by sideways movement.
Figure 9: Unemployment Comparisons
The chart on the left shows the unemployment projections for
May 2025. The chart on the right shows the unemployment projections for
June 2025.
Two-panel chart comparing unemployment projections. Left panel shows May 2025 unemployment rate projections from Kalshi mean and Bloomberg consensus, both accurately predicting the actual release. Right panel shows June 2025 projections, where both forecasts overestimated the actual unemployment rate, though Kalshi's mean was closer to the realized value than Bloomberg's consensus.
Figure 10: Fed Funds Futures vs Kalshi Sept. and Oct. 2025 FOMC
Meetings
The upper left panel shows the implied probability from Fed
Funds futures for the September FOMC meeting. We use the price of the
Fed Funds futures contract for October to determine the probabilities
which are assumed to have just two possible outcomes. The upper right
panel shows the corresponding Kalshi distribution that does not enforce
the assumption of just two outcomes. The lower left panel shows the
implied probability from fed funds futures for the October FOMC meeting.
For parsimony, we use the price of the fed funds futures contract for
November to determine the probabilities. The lower right panel shows the
equivalent Kalshi distribution.
Four-panel comparison chart. Upper left shows fed funds futures-implied probabilities for September 2025 FOMC with binary outcomes (75% probability of 25bp cut). Upper right shows Kalshi distribution with greater uncertainty across multiple outcomes. Lower left shows fed funds futures probabilities for October 2025 FOMC. Lower right shows corresponding Kalshi distribution with probabilities spread across seven different outcomes, illustrating how fed funds futures oversimplify by assuming just two possible outcomes.
Figure 11: SOFR Options vs Kalshi Q4 2025 FOMC Meeting
The left panel shows the implied probability from SOFR options
for the fourth quarter of 2025. This is defined as mid-September to
mid-December 2025. The right panel shows the equivalent Kalshi
distribution, which is computed by averaging over the September and
October 2025 FOMC meetinigs.
Two-panel chart comparing rate expectations. Left panel shows SOFR options-implied distribution for Q4 2025, with modal outcome suggesting no rate cuts. Right panel shows equivalent Kalshi distribution (averaged across September and October meetings) placing greater weight on a 25 basis point cut, highlighting differences likely due to the 6 basis point spread between SOFR and effective federal funds rates and potential institutional hedging effects in SOFR markets.
Figure 12: End of Year 2025 Distributions for CPI and Real GDP
Growth
This chart shows the probability distributions for CPI and real
GDP growth for 2025. These are calculated as December 2024 to December
2025 for CPI, and 2024Q4 to 2024Q5 for real GDP growth.
Two-panel chart showing probability distributions. Left panel displays Kalshi probability distribution for year-end 2025 CPI inflation at three different dates, showing increasing weight on outcomes above 3.5% over time. Right panel shows distributions for real GDP growth, with growing probability mass below 1% growth, reflecting market concerns about potential trade policy effects. The median values align with Blue Chip Economic Indicators consensus forecasts.
Figure 13: End of Year 2025 Stagflation Risks
This chart shows the probability of tail risks for CPI and real
GDP growth for 2025 over time. These are calculated as December 2024 to
December 2025 for CPI, and 2024Q4 to 2024Q5 for real GDP growth.
Probabilities are created by taking the sum of different bins in each
period over time.
Four-panel chart tracking tail risk probabilities over time. Upper left shows probability of CPI exceeding 3% from Kalshi, SPF, and Blue Chip surveys. Upper right shows probability of GDP growth below 1.5%. Lower left shows probability of CPI above 4%. Lower right shows probability of negative GDP growth. All panels demonstrate increasing concern about stagflationary risks during early April, coinciding with trade policy developments, followed by some moderation as trade tensions eased.
Figure 14: Headline, Core CPI and Unemployment Forecast Errors
Comparison
This figure compares the mean absolute errors from 50 days out
to each headline CPI, core CPI, and unemployment release since
2022.
Three-panel chart showing mean absolute errors plotted against days before data release. Top panel shows headline CPI forecast errors from Kalshi mean, median, mode, and Bloomberg consensus, with Kalshi showing slight advantage. Middle panel shows similar comparison for core CPI with comparable performance. Bottom panel shows unemployment forecast errors with Kalshi performing similarly to Bloomberg consensus. All panels demonstrate improving forecast accuracy as release dates approach.
Figure 15: Probability Integral Transform
This figure show the empirical cumulative distribution function
as of 0 and 28 days before unemployment, CPI (headline and core) and
FOMC scheduled federal funds rate announcements, all evaluated at the
realized value. If the options-implied distribution were equal to the
physical distribution, then this probability integral transform would be
uniform in population, as shown by the lines. Each panel also reports
the \(p\)-values from the test
statistics \(k\) and \(C\), defined in the text, using the
bootstrap of
Eight-panel chart showing empirical cumulative distribution functions evaluated at realized values for unemployment, headline CPI, core CPI, and federal funds rate at both 0 and 28 days before announcements. Each panel includes statistical test values (K and C) with p-values. The diagonal line represents the ideal uniform distribution that would occur if Kalshi probabilities perfectly matched physical probabilities. The charts show generally well-calibrated distributions with some minor deviations, particularly for inflation and unemployment.
Figure 16: Federal Funds Rate Distribution Responses to Economic
News
A. Modal and Mean Responses
This figure shows the average responses of the distribution of
the federal funds rate for the next several FOMC meetings following news
releases for CPI, PCE inflation, Non-farm payrolls, ISM Manufacturing,
FOMC, and FOMC minutes. Other corresponds to all other days which do not
fall into these categories.
Two-panel chart showing how federal funds rate distribution moments respond to economic news. Panel A displays modal and mean responses across different news types (CPI, PCE, NFP, ISM, FOMC, Minutes). Panel B shows variance and skewness responses to the same news types. CPI days show the largest positive effects on rate expectations, while nearly all news types reduce variance, consistent with uncertainty resolution. FOMC and nonfarm payroll days have the largest effects on skewness.
Figure 17: Federal Funds Rate Distribution Responses to CPI Inflation
Surprises
This figure shows the average responses of the distribution of
the federal funds rate for the next several FOMC meetings following
positive, negative and zero news from the CPI inflation
release.
Four-panel chart showing how federal funds rate distribution moments respond to CPI surprises (positive, negative, or zero). Left panel shows mean responses with asymmetric pattern: positive CPI shocks cause four times larger increases than negative shocks decrease rates. Second panel shows variance declining across all outcomes, most sharply when releases match expectations. Third and fourth panels show skewness and kurtosis effects, illustrating complex distributional impacts beyond simple mean shifts.
Figure A.1: Midpoint of Bid-Ask Spread: Fed Funds Rate Forecast
Errors
This figure compares the mean absolute errors from 160
days out to each FOMC for the effective federal funds rate since 2022.
Both the last trade and bid-ask midpoints are plotted.
Chart in the appendix comparing mean absolute errors for federal funds rate forecasts using two methodologies: last-trade prices versus bid-ask midpoints. The x-axis shows days before FOMC meetings (160 to 0), while the y-axis shows error magnitude. The bid-ask midpoint approach (dashed line) shows significantly more volatility and larger spikes in forecast errors compared to the last-trade method (solid line), particularly as the meeting date approaches, explaining why the authors preferred the last-trade methodology.