Oh worse than that.

The "emergency powers" they speak of are 7 U.S.C. § 12a(9), and they are quite specific.

It gives them the authority to direct a registered entity to do a few specific things. None of those things are relevant to here. It's stuff like emergency margin requirements, position limits, etc. Not "violate state law". It gives them no power to enable a registered entity to violate a TRO, or anything like that. Such a power would have to come through pre-emption.

The CEA gives them zero authority to preempt state law directly, and any pre-emption would have to be argued to already have occurred under the Commodity Exchange Act. They'll argue it occurs because of their order, but it actually doesn't meet the requirements to do that, so then they'll argue the CEA preempts state law.

As you may imagine, this has been argued about before, for a very very very long time.

Gambling is core state police power, and has been found so many times. As such, presumptions against pre-emption would apply, etc. Even in the current court that ignores precedent, using an esoteric made-for-specific-situations emergency power statute like this one would to preempt new york/etc (this is not the only case) law would run clearly afoul of the so-called major questions doctrine.

Lastly, the current CEA regulations actually ban event contracts that are unlawful under state law (17 CFR 40.11):

https://www.law.cornell.edu/cfr/text/17/40.11

Prohibition. A registered entity shall not list for trading or accept for clearing on or through the registered entity any of the following: ...

1. (1) An agreement, contract, transaction, or swap ... that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law;

So trying to pre-empt state law when the existing regulations clearly don't allow event contracts that are disallowed under state law is ... not likely to succeed.

Also note that New York has claimed a violation of the wire act in there, and in particular 18 U.S.C. § 1084(a). This is a federal statute that makes it illegal to transmit sports betting information over the wire (it's okay if it's from a jurisdiction where it's legal to a jurisdiction where it's legal). They have asked the court to enjoin them from violating this. This claim is here because it avoids all the pre-emption issues - it's a federal statute. So New York is also hedging their bets on the state preemption issue.

All that said, there is also a CFTC-designated contract market that Kalshi operates, and that they could likely exercise significantly more power over, and New York can order them around less on. But that is likely to end up in the supreme court, and harder to predict. Any other court the answer would be clear - congress doesn't have the authority to regulate purely intra-state gambling, etc.