U.S. Recession Odds Plunge 58% Since April Amid Trade Progress

Bets on a U.S. recession in 2025 have dropped sharply, with odds on crypto prediction platform Polymarket sinking to 22% this week, the lowest level since late February. This decline comes after perceived odds of a U.S. recession peaked at 66% back in April as Wall Street banks were raising red flags.

Recession fears ballooned earlier this year when the Atlanta Federal Reserve’s GDPNow indicator predicted a 1.5% contraction for the first quarter of the year, while the actual fall was softer at 0.5%. Tensions escalated in March as U.S. President Donald Trump announced a series of reciprocal tariffs on what he branded “Liberation Day,” rattling investors already wary of a slowing economy. The Fed’s decision to slow the pace of shrinking its balance sheet added fuel to concerns.

By April, Wall Street giants were raising red flags. Goldman put recession odds at 45% at the time, and Polymarket odds climbed as high as 66%. Another spike came in May after former U.S. Treasury Secretary Janet Yellen warned that Trump’s tariffs could have a “tremendously adverse” effect on the economy.

Yet behind the headlines, negotiations with China progressed. The market coined the so-called TACO (Trump Always Chicken Out) trade, referencing the U.S. President’s negotiations pattern, where tariffs are announced but then reversed. Progress in U.S.-China trade negotiations and easing financial conditions have seen those odds diminish.

Goldman Sachs cut its 12-month recession odds to 30% last month, reflecting a more optimistic outlook as financial conditions eased and trade threats receded. Whether a recession hits in 2025 remains uncertain. On Polymarket, a recession bet pays out if the National Bureau of Economic Research declares one or if the U.S. posts two straight quarters of negative GDP growth.

In summary, the perceived odds of a U.S. recession have significantly decreased from their peak in April, largely due to advancements in trade negotiations and improving financial conditions. This shift in sentiment reflects a more optimistic outlook for the U.S. economy, despite earlier concerns raised by Wall Street banks and economic indicators.

Analysts have noted that the progress in trade negotiations and the easing of financial conditions have played a crucial role in reducing the perceived odds of a recession. The market's response to these developments indicates a growing confidence in the economic outlook, despite the initial fears sparked by economic indicators and political actions. The decline in recession odds on Polymarket to 22% underscores this shift in sentiment, highlighting the market's sensitivity to changes in trade policies and economic conditions.