- Prediction markets show U.S. recession probability rising above 50% following Trump’s tariff announcements
- Trump’s plan includes a 10% base tariff on all imports, with China facing up to 54% total tariffs
- Despite market concerns, some analysts believe the tariffs may only slow growth rather than cause a full recession
Recession fears have intensified in the United States after President Donald Trump unveiled his sweeping tariff plan. Prediction markets, including Polymarket and Kalshi, are now signaling a heightened likelihood that the U.S. economy will experience a downturn this year.
On the decentralized prediction platform Polymarket, the probability of a U.S. recession in 2025 surpassed 50% for the first time since the contract began trading earlier this year. The "US Recession in 2025" contract saw Yes shares jump from 39 cents to over 50 cents in less than 24 hours. Similarly, Kalshi, a regulated U.S.-based prediction market, showed recession probability rising from 40% to 54%.
Financial markets reacted swiftly to these concerns, with S&P 500 futures dropping 3% at publication time. Bitcoin traded at $83,100, down 1.5% over 24 hours, reflecting the Ripple effects of the economic uncertainty on risk assets.
The tariffs announced Wednesday establish a 10% base rate on all imports, with additional taxes on 60 nations labeled as "worst offenders." China faces the heaviest burden with a 34% levy on top of existing 20% charges, bringing the total to 54%. The base tariffs take effect April 5, followed by higher reciprocal rates on April 9.
Economic Impact Projections
While the Trump administration aims to address persistent U.S. trade deficits through these tariffs, economic experts warn of potential short-term consequences, including increased domestic inflation and global instability. The situation could worsen if trading partners like China and the European Union retaliate with their own tariff increases.
However, not all analysts predict a severe downturn. UBS stated in a blog post: "The threat of further tariff escalation remains a key concern, but our economic forecasts do not call for a recession in the US." The bank’s base case projects slower economic growth compared to last year but still expects around 2% expansion – the historical trend rate.
Potential Market Recovery
Some market observers suggest the initial negative reaction could be short-lived. Joseph Wang, who operates fedguy.com, noted on social media that "tariffs are dovish, and big tariffs are very dovish," suggesting the Federal Reserve may implement rate cuts to counter economic headwinds from the tariffs.
Wang argued that while tariffs can cause inflation, their effects are typically transitory and can be offset through foreign exchange rates. The potentially longer-lasting damage to business sentiment could lead to unemployment, which the Fed would likely try to prevent through monetary policy adjustments.
Rate traders are already pricing a higher probability that the Fed will cut benchmark interest rates in June, potentially restarting the easing cycle that began in September last year.
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