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Is Recession Coming to the U.S.?

Significant market moves in the last 24 hours provide insight

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TL;DR:

  • Polymarket odds for a US Recession in 2025 spiked to 63% (up from 52% last week), with $3.4M in trading volume signaling heightened trader activity.
  • "Negative GDP in Q1 2025" surged to 55% (up 20% in 24 hours), while Q2 sits at 62.5% and Q3 at 49%, reflecting mid-year slowdown concerns.
  • The likelihood of a US-EU trade deal before June fell to 28% on Polymarket ($22K volume), while the "US-China trade deal" dropped to 22% ($635K volume), hinting at ongoing trade tensions.

Market Snapshots

Event Breakdown

Is recession coming to the U.S.?: As economic uncertainty looms, prediction markets are signaling a spike in the potential for a U.S. recession. Drawing from Polymarket data over the past month, alongside recent economic developments, we break down the likelihood of negative GDP growth and a broader recession in 2025.

Polymarket’s "Negative GDP in Q1 2025" market ($586K volume) has shown volatility, peaking at over 50% back in early April following “Liberation Day” before pulling back to a low of 17% on April 10th. Over the last few hours we’ve seen a significant spike as the likelihood of negative GDP growth in Q1 now sits at 55%, up more than 20% from yesterday. The "Negative GDP in Q2 2025" market ($63K volume), has been less volatile. It spiked to 73% mid-month but has dipped back to 62.5%, reflecting growing concerns about a mid-year slowdown. That said, similar to the Q1 market, we’ve seen a sizable 6% increase over the last 24 hours to get to 62.5%. Meanwhile, the "Negative GDP in Q3 2025" market ($113K volume) has held steadier, dropping slightly to 49%.

The broader "US Recession in 2025" market ($3.4M volume), which tracks the probability of two consecutive quarters of negative GDP growth, has also increased in recent days, up to 63% from 52% a little less than a week ago. Shifts of this size in this market with - sizable volume and liquidity - suggest significant trader activity of late.

Recent news provides context for these market movements. The U.S. economy grew at a 2.8% annualized rate in Q4 2024, according to the Bureau of Economic Analysis, but warning signs are emerging. The Conference Board’s Leading Economic Index fell 0.4% in March 2025, marking its third consecutive monthly decline, driven by weaker manufacturing orders and a softening labor market. Initial jobless claims rose to 230,000 for the week ending April 18, up from 215,000 the prior week, per the Department of Labor, hinting at potential cracks in employment stability. Additionally, the Institute for Supply Management’s manufacturing PMI dipped to 48.7 in March, signaling contraction for the second straight month.

Geopolitical tensions and policy uncertainty are also fueling recession fears. Trump’s proposed tariffs, which he doubled down on during a late-March speech, have raised concerns about trade disruptions. A report from the Peterson Institute for International Economics estimates that a 10% universal tariff could shave 0.2% off U.S. GDP by mid-2025, with larger impacts if retaliatory measures escalate. Prediction markets are reacting: the "Negative GDP in Q2 2025" market’s 62.5% odds align with these risks, as traders anticipate tariffs could hit consumer prices and corporate margins by summer.

Monetary policy adds another layer of complexity. The Federal Reserve’s decision to hold rates steady at its March meeting, with a 91% chance of no change in May, suggests persistent inflationary pressures. The 10-year Treasury yield climbing has sparked bond sell-offs, with Polymarket giving a 35% chance of yields exceeding 4.4% by late April. Rising yields could tighten financial conditions, potentially slowing investment and consumer spending—key drivers of GDP growth.

Despite these headwinds, some indicators offer hope. Retail sales rose 0.6% in March 2025, per the Commerce Department, beating expectations of 0.3%, signaling resilient consumer demand. The S&P 500, though volatile with a $1.5T wipeout in early April, has since recovered 2.1% as of April 25, reflecting cautious market optimism. However, the "US Recession in 2025" market’s recent bump to 63% suggest traders remain on edge, balancing these positive signals against broader risks.

It’s interesting to see the rapid uptick in the likelihood of a 2025 recession in spite of the “Negative GDP growth 2025” market falling to 27%. Sentiment also seems to imply that a contraction in GDP is unlikely to exceed 5%. The data underscores a nuanced outlook for a U.S. recession in 2025. For traders and probabilistic forecasters, these markets offer a lens into crowd-sourced expectations. Will tariff policies derail growth, or can consumer resilience hold the line? How will the Fed’s rate decisions shape liquidity? Follow us on X for the latest.

Related markets & forecasts:

Long-Tail Radar

Polymarket’s “US-EU trade deal before June?” ($22,175 volume) tracks whether the United States and European Union will reach an official trade or tariff agreement between April 10 and May 31, 2025. Currently trading at 28% for “Yes”, down from 40% yesterday, this long-tail market captures a pivotal moment in global trade dynamics, particularly amid escalating tariff tensions. Despite its modest volume, its implications for markets and geopolitics make it a signal worth watching.

This market’s relevance stems from the ongoing trade war, with Trump’s tariffs—90 day pause on 20% “reciprocal tariffs” on EU goods, 145% on Chinese imports, and the baseline 10% tariff that went into effect on April 5—driving urgency for a US-EU deal. A swift agreement could stabilize transatlantic trade, worth $1.3 trillion annually (per USTR), shielding both economies from costlier supply chains. A US-EU deal could redirect pressure onto China, whose $3.5 trillion export economy faces steeper barriers if the West aligns

For China, a US-EU pact could intensify economic headwinds. Beijing’s export-driven growth (19.74% of GDP in 2023, per World Bank) relies on open markets. If the US and EU harmonize tariffs, China’s goods—already hit by 10% US duties—could lose competitiveness, squeezing manufacturers.  Polymarket’s “US-China trade deal before June?” ($635,551 volume) at 22%—down from 67% on April 10th—underscores this risk, with traders eyeing continued tariff fallout.

Despite low liquidity, the “US-EU trade deal before June?” market’s signal is amplified by its timing and context. Trade wars reshape global flows, and prediction markets like this one aggregate crowd-sourced foresight into real-time odds. Its 28% “Yes” probability reflects cautious optimism amid high-stakes talks, with volume likely to climb as deadlines near. This long-tail market offers a lens into how news—tariff threats, EU summits, etc.—translates to tradable information centered upon probabilistic outcomes. Track it on Polymarket here!

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