Key Highlights:

• The predicted odds for a U.S. recession in 2025 have decreased to 22% on Polymarket, marking the lowest since late February.
• Contributing factors included the GDPNow indicator from the Atlanta Fed forecasting a contraction, alongside Trump’s tariff measures and alterations in the Fed’s balance sheet.
• Increased progress in U.S.-China trade discussions has coincided with a drop in these recession odds.

Bets on a recession have drastically fallen, with Polymarket indicating only 22% this week, compared to a peak of 66% earlier this year. The fears had surged after initial GDP forecasts from the Atlanta Federal Reserve indicated a predicted contraction of 1.5% for the first quarter, although the actual GDP dropped by a lesser 0.5%.

As tensions rose earlier in the year due to tariffs imposed by President Trump on what he termed “Liberation Day,” Wall Street began to show concern over a faltering economy, with prominent firms like Goldman Sachs and JPMorgan adjusting their recession predictions upwards to 45% and 66% respectively.

However, improvements in negotiations with China have helped alleviate some of these fears. The market has created a term for this trend called TACO (Trump Always Chicken Out), highlighting the pattern of initial tariff announcements being later retracted.

Goldman Sachs recently revised its prediction down to 30%, reflecting more positive market conditions and reduced trade concerns. The future of a recession by 2025 remains uncertain. On Polymarket, a bet on recession validity is contingent upon declarations from the National Bureau of Economic Research or consecutive quarters of negative GDP growth.