Concerns over a potential recession in the U.S. have intensified following the announcement of President Donald Trump’s tariff strategy. Prediction markets like Polymarket and Kalshi indicate that anxiety surrounding the economy’s downturn is growing.
On Polymarket, a decentralized prediction market, the probability of the U.S. entering a recession this year has crossed the 50% mark for the first time since the trading of the “US Recession in 2025” contract commenced earlier this year. The value of Yes shares for the contract surged from 39 cents to over 50 cents in under a day.
This contract will settle on Yes if the National Bureau of Economic Research (NBER) declares a recession any time before December 31. Additionally, back-to-back quarterly declines in gross domestic product are required for confirmation.
Kalshi, a regulated prediction market based in the U.S., also reflects increased economic anxiety among traders, with the likelihood of a recession in 2025 climbing from 40% to 54%.
Financial markets typically consider future projections, and increasing fears of a U.S. recession may lead to declines in risk assets such as bitcoin (BTC) and other cryptocurrencies. As of this writing, S&P 500 futures dropped 3%, indicating significant risk aversion on Wall Street, which negatively impacts bitcoin, trading at $83,100—down 1.5% over the past 24 hours.
The comprehensive tariffs introduced on Wednesday impose a base rate of 10% on all imports, with steeper taxes on 60 countries identified as primary offenders. China, the hardest hit, is facing a 34% additional tariff atop an existing 20% charge, culminating in a total of 54%. The base tariffs are set to take effect on April 5, with the escalated rates implemented on April 9.
While the Trump administration anticipates that these tariffs will address the ongoing U.S. goods trade deficits, they could temporarily spike domestic inflation and contribute to global instability. This could manifest quickly if retaliations from China, the European Union, and other regions result in increased tariffs, igniting a full-scale trade war.
Will the Risk Aversion be Temporary?
Nevertheless, some analysts suggest that the uncertainty surrounding tariffs may only lead to an economic slowdown rather than a full-blown recession.
“The uncertainty of further tariff increases is a significant worry, but our economic outlook does not predict a recession in the U.S.,” UBS conveyed in a blog entry. “In our baseline scenario, a variety of selective tariffs and countermeasures are likely to slow economic growth compared to the previous year, but should not prevent the U.S. economy from expanding at around 2%—its historical rate—this year.”
Regarding financial markets, some analysts posit that the tariffs may actually be dovish, suggesting that the initial risk-off reaction could be brief and quickly reversed by anticipations of interest rate cuts from the Federal Reserve.
Wang contended that while tariffs could drive inflation higher, the impact can be offset through foreign-exchange rates and are ultimately temporary. However, the adverse effect on business sentiment can have a lasting impact, potentially raising unemployment levels—something the Fed would aim to avoid.
Currently, rate traders are increasing their odds that the Federal Reserve will lower the benchmark borrowing rate in June, potentially restarting the easing cycle that began in September of the previous year.