Kalshi markets have gained popularity in recent times as a unique platform for predicting macroeconomic outcomes. But how does the Federal Reserve view these markets? In this blog post, we delve into the probability distributions implied by Kalshi markets and compare them to more established financial instruments. We find that the probability mass allocated by Kalshi markets is well-behaved and consistent with those from other financial instruments.

We explore how different types of macroeconomic news announcements affect the moments of interest rate beliefs, including the mean, variance, and skewness. Our findings reveal an interesting asymmetry in the responses to positive and negative CPI shocks, with larger responses to positive shocks. We also examine the effects of these surprises on the moments of the Federal Funds rate using a standard event-study regression and find many of these moves are statistically significant.

Our analysis sheds light on how the Fed views macroeconomic news and how it affects interest rate beliefs. By studying the probability distributions implied by Kalshi markets, we can gain a better understanding of how the Fed allocates probability mass and how it responds to different types of macroeconomic news.