When navigating a complex modern economy, we rely on forecasts to make critical decisions. For decades, the final word on economic trends, particularly inflation and interest rates, belonged to the central bank officials and other experts, the “high-priests” of the economy. Their predictions were gospel and their economic models unquestionable.
However, a new, decentralized contender has quietly emerged and, in recent years, proved alarmingly accurate. Prediction market platforms such as Polymarket, which allow anyone to bet real money on future events, from elections to consumer prices, and their odds often update in real-time with new information. Remarkably, these markets have consistently demonstrated superior foresight compared to the established economic bureaucracy, which has repeatedly mispredicted inflation in recent years.
How Prediction Markets Work
Polymarket and its peers turn expectations into prices. On Polymarket, users buy “yes” or “no” shares on propositions such as “Will China unban Bitcoin in 2025?”, using real money or crypto. The market price of a share ranges from $0.00 to $1.00, and it directly reflects the crowd’s probability estimate. For instance, if a contract is trading at $0.70, this implies a 70% chance of that outcome. As more bets pour in, the odds shift instantly. In effect, tens of thousands of traders pool their information and opinions.
This model has several strengths. First, people’s money is on the line, creating strong incentives for accuracy. Unlike casual surveys or polls, where respondents face no penalty for being wrong or dishonest, traders profit only when they get it right. Second, these markets aggregate dispersed information. Enthusiasts, analysts, experts, and even insiders can participate, so even small bits of data or local knowledge are incorporated into the price, while traditional institutions require more time to gather and verify the same information. Third, prediction markets are transparent. Every bet and price update is recorded, creating a trail of what the market believes at any given time. In contrast, expert projections are formulated behind closed doors and released as aggregate forecasts, often without accountability.
In practice, Polymarket covers a broad range of topics, including inflation. Its “Economic” category has questions on inflation, unemployment, and GDP. In 2025, Polymarket opened a market on “How high will inflation get in 2025?” with traders betting on different thresholds. In October, traders were assigning about an 83% chance of inflation rising above 3%, but by December, that probability had come down toward 50%, reflecting changing news. This direct market for inflation contrasts with the Fed’s limited forecasts. Polymarket shows how outsiders collectively think inflation will behave given current trends.
What’s striking is that prediction markets frequently outperform conventional forecasts. Research on the election markets, going back to Iowa Electronic Markets, has shown that crowds can beat expert polls. Similarly, sports-betting markets often give more accurate odds than pundits. On Polymarket, the lead-up to the 2024 U.S. election showed that traders’ odds correctly identified the winner well before many news outlets or polls did. These successes suggest that, in many cases, the wisdom of the crowd can outstrip a single institution’s view.
The Federal Reserve’s Forecasting Record
By contrast, central banks have struggled with recent inflation. The pandemic and its aftermath created unprecedented conditions that overwhelmed traditional models. By late 2021, the Fed’s median projection for core PCE inflation in 2022 was under 3%, yet inflation rates soon exceeded 7-9%. The Fed projected that inflation would decline towards 2%, a dangerously optimistic outlook, while inflation actually hit 9.1% by mid-2022. Similar misses occurred at the European Central Bank and Bank of England from 2021 to 2024.
In summary, the Fed’s record of inflation forecasting has been poor. Officials repeatedly underestimated the magnitude and persistence of the surge caused by the pandemic. At the same time, Polymarket traders effectively signaled those risks earlier. When many analysts still considered inflation in 2021 transitory, Polymarket’s inflation markets began pricing in higher inflation outcomes. While Polymarket didn’t get everything right either, it moved closer to reality faster.
Why Markets Can Out-Forecast Banks
The root cause of the central bank’s persistent miscasting lies not in an intelligence deficit, but in misaligned incentives. Unlike a private citizen seeking profit, a central banker operates within a complex political and institutional structure that prioritizes stability over pure predictive accuracy.
In any large bureaucracy, the incentive structure rewards conformity. No Fed official or staff economist wants to be the one who publicly announces hyperinflation while politicians promise stability. Predicting a deviation from the consensus is detrimental to one’s career path in the institution. The safe bet is always to stick to the established narrative, even if internal data or personal intuition suggest otherwise. Prediction markets, by contrast, reward the single correct outlier, providing a powerful mechanism to bypass this vulnerability.
Central banks are also aware that their words can move financial markets and influence public behavior. This responsibility creates a temptation to engage in expectation management. If the Fed were to publicly announce a high inflation risk or suggest that rates would rise sharply, it could inadvertently trigger widespread financial panic, leading to political backlash or aggressive market shifts. Therefore, they are incentivized to manage public expectations, which often means smoothing out or “sugar-coating” the reality of an economic landscape. In a prediction market, there is no expectation to manage; there is only a price to discover.
Prediction markets simply offer a structurally superior method of knowledge aggregation that solves the fundamental problems of central planning.
Traditional forecasting involves data collection, model creation, committee review, and scheduled releases. Prediction markets update their probabilities in real-time with every single trade. If new, vital information is available, the market price changes in seconds.
Additionally, when a trader buys a share on Polymarket, they are risking their own capital. This financial incentive serves as the ultimate filter. If a central bank economist is wrong, they keep their job. If a prediction market trader is wrong, they lose their money. This difference in accountability fundamentally alters the quality of the information aggregated.
Moreover, prediction markets operate outside the centralized, hierarchical systems that create cognitive bias, groupthink, and career-driven decision-making. They provide a pure, objective signal derived from the willingness of individuals to bet on a specific outcome.
For all these reasons, prediction markets often beat the polls and official projections. In a sense, they are harnessing a decentralized “crystal ball” effect, when diverse beliefs are distilled into a single price.
A Verifier For Official Forecasts
Given this backdrop, prediction markets can serve as an independent check on central banks. If Fed projections diverge sharply from Polymarket odds, that gap can trigger an investigation. In fact, economists are already using Polymarket in research, which shows how prediction market data can reveal private beliefs about economic trends.
In practice, one could imagine central banks watching these markets. Instead of relying solely on internal models, policymakers might check their forecasts against the crowd’s view, because prediction markets could offer more direct signals.
Of course, prediction markets are not perfect. They can be occasionally swayed by large traders, but as larger and larger volumes have begun to flow into key contracts, their reliability should improve. Already, Intercontinental Exchange, the New York Stock Exchange’s parent company, announced plans to integrate Polymarket data into trading platforms, valuing its predictive power.
Towards Transparent Forecasting
While central banks remain the ultimate policymakers, there’s growing evidence that “the crowd” often sees inflation coming more clearly. Prediction markets like Polymarket provide a real-money barometer that is harder to bias or manage. They force honesty by punishing wrong forecasts and rewarding accuracy. If we trust markets for forecasting commodity prices, why not let them help forecast our economy?
A sensible approach is not to replace central banks, but to improve them. Incorporating market-based forecasts could build public trust. After all, as economists warn, eroding trust in monetary authorities can cause chaos. By contrast, a decentralized system of prediction markets keeps everyone honest.
The solution is clear: let the markets have a voice in forecasting. Governments should pay attention when the crowd speaks. Bringing these market forecasts into the debate will improve accuracy, and it will foster accountability, a transparent “reality check” that can keep policy-makers honest in pursuing truly stable prices.
This piece solely expresses the opinion of the author and not necessarily the magazine as a whole. SpeakFreely is committed to facilitating a broad dialogue for liberty, representing a variety of opinions. Support freedom and independent journalism by donating today.
