U.S. Recession Odds on Polymarket Plunge to 22% as Trade Tensions Cool

Recession Probabilities in 2025: A Shifting Landscape

Concerns surrounding a potential U.S. recession in 2025 have significantly decreased, with prediction markets reflecting this shift in sentiment. Polymarket, a cryptocurrency-based prediction platform, currently places the odds of a recession at 22%, the lowest point since late February. This contrasts sharply with the heightened anxiety earlier in the year.

The initial surge in recession fears stemmed from the Atlanta Federal Reserve’s GDPNow indicator, which projected a 1.5% contraction in the first quarter of 2025. While the actual decline proved milder at 0.5%, concerns remained. President Donald Trump’s announcement of reciprocal tariffs in March, dubbed “Liberation Day,” further exacerbated investor apprehension, adding to existing worries about economic slowdown. The Federal Reserve’s decision to moderate its balance sheet reduction also fueled these concerns.

By April, prominent Wall Street institutions like Goldman Sachs and JPMorgan Chase voiced their anxieties, with Goldman estimating a 45% probability of a recession. Polymarket odds climbed as high as 66% during this period. Former U.S. Treasury Secretary Janet Yellen’s May warning about the potentially devastating economic consequences of Trump’s tariffs only intensified the uncertainty.

However, the narrative has shifted. Positive developments in ongoing trade negotiations with China have tempered recession anxieties. The market has observed a pattern in President Trump’s trade negotiations, coining the term “TACO” (Trump Always Chicken Out) to describe his tendency to announce tariffs but later retract them.

This improved trade outlook has influenced financial institutions to revise their predictions. Goldman Sachs recently lowered its 12-month recession probability to 30%, reflecting increased optimism as financial conditions stabilized and trade tensions eased.

Despite these positive developments, the ultimate occurrence of a recession in 2025 remains uncertain. On Polymarket, a recession prediction is validated if either the National Bureau of Economic Research declares a recession or if the U.S. experiences two consecutive quarters of negative GDP growth. The fluctuating probabilities highlight the dynamic nature of economic forecasting and the sensitivity of market sentiment to policy announcements and international trade relations.