If a recession is coming, you can always… pound a Jägerbomb and hope for the best. Alternatively, you may hedge your risk on a prediction market — which seems to be a healthier option?
Traders on Kalshi are increasingly betting on a U.S. recession in 2025, with the likelihood of an economic downturn now at 41%, up from 24% last month. As market sentiment shifts, businesses and governments worldwide are taking preemptive measures, from price hikes to counteractive policy decisions.
Businesses respond to growing recession fears
Retail giant Target announced it will raise prices across multiple product categories, citing inflationary pressures and weakening consumer demand. The move comes amid rising operational costs and shifting economic forecasts. Prediction markets came up with a small volume bet on whether the CEO of Target will leave before the end of the year, trading at 47% possibility on Kalshi.
Meanwhile, China is implementing countermeasures to stabilize its export-driven economy, including currency interventions and relaxed lending policies to shield domestic firms from potential fallout. Prediction markets are speculating on whether Trump will remove the tariff on China before May, trending on Polymarket.
In North America, Canada’s energy regulators have approved electricity rate hikes for three provinces, including New York, further adding to household cost burdens. Officials cited increasing grid demand and supply chain disruptions as key reasons behind the decision. Prediction markets are seeing an up-tilting trend on whether the US will take control of any part of Canada before 2029, trading at 19% possibility on Kalshi.
“Americans are increasingly pessimistic about the outlook. No Federal government has ever before threatened government workers with mass firings and it is starting to scare the daylights out of consumers,” Christopher Rupkey, chief economist at FWDBONDS, told Reuters. “The economy could well ground to a halt in the first quarter of the year as consumers stay home.”
Prediction markets reflect heightened uncertainty
Beyond recession bets, traders on Kalshi are also speculating on related economic shifts:
- The number of emergency Fed rate cuts this year is now projected at two, with some traders betting on even more aggressive action.
- The probability of the S&P 500 ending the year lower than it started has surged to 58%, reflecting investor concerns.
- Unemployment rate spikes are also being closely monitored, with the likelihood of it exceeding 5% by year-end climbing in recent weeks.
The case for ‘Yes’ (41%): A recession is coming
- Tightening Consumer Budgets – Rising retail prices, higher energy costs, and increasing debt levels are dampening spending, a key driver of U.S. economic growth.
- Global Economic Pressures – China’s preemptive financial maneuvers and Canada’s cost hikes signal a broader slowdown affecting key trade partners.
- Corporate Layoffs and Profit Warnings – Several major companies, including tech firms and retailers, have already cut jobs or revised earnings expectations downward.
- Prediction Market Trends – The sustained climb in Kalshi’s recession contracts suggests traders are growing more convinced of an economic downturn.
The case for ‘No’ (59%): A recession may be avoided
- Resilient Labor Market – Unemployment remains low, and job openings continue to outpace available workers in key industries.
- Fed’s Potential Policy Adjustments – If economic data worsens, the Federal Reserve could step in with rate cuts to prevent a deeper slowdown.
- Earnings Growth in Key Sectors – Some industries, including AI and defense, are experiencing strong demand and could offset weaknesses in other areas.
- Historical Trends – Markets have predicted recessions before without them materializing, making it possible that fears are overblown.
- As traders continue adjusting their bets and businesses prepare for uncertainty, all eyes remain on upcoming economic indicators—and whether the U.S. can sidestep a downturn or if the warning signs will become reality. In the meantime, grab a drink or place your bets.
