TLDR:
- Prediction markets show 50-56% chance of US recession by end of 2025, up from ~40% before Trump’s tariff announcement
- Trump unveiled a 10% blanket tariff on all US imports plus reciprocal tariffs on 90 nations
- Economists warn tariffs could cause stagflation (high inflation with stagnant growth)
- Markets reacted negatively with Nasdaq and S&P 500 dropping ~5-6%
- Economists estimate tariffs could add 1 percentage point to inflation and reduce GDP growth
President Donald Trump’s recent announcement of sweeping tariffs has sent shockwaves through financial markets and prediction platforms, with bettors increasingly betting on a US recession by the end of 2025. The tariff policy, unveiled on Wednesday in what Trump called “Liberation Day,” includes a 10% blanket tariff on all US imports and additional reciprocal tariffs targeting 90 nations.
Prediction markets reflected growing economic worries immediately after the announcement. Polymarket shows a 50% chance of recession by year-end, up from 40% before the announcement. Kalshi’s prediction rose to 56% from 43%, while Myriad Markets shows a 53.6% chance.
The market reaction was swift and negative. The tech-heavy Nasdaq closed down nearly 6% on Thursday, with the S&P 500 falling about 5%. Cryptocurrency markets weren’t spared either, with Bitcoin and major altcoins shedding more than $200 billion in market value.
Economic Impact Concerns
Trump defended the tariffs during a White House Rose Garden ceremony, claiming they “will give us growth like we’ve never seen before.” However, many economists have expressed serious concerns about potential negative consequences.
Economists warn these tariffs could lead to stagflation – a combination of stagnant economic growth and high inflation. This happens because tariffs are paid by US businesses importing goods, who typically pass these costs to consumers through higher prices.
Several economic indicators were already pointing downward before the tariff announcement. The March Purchasing Managers’ Index showed prices increasing at their fastest rate since mid-2022, with factory activity contracting. The Conference Board’s consumer confidence index recently hit its lowest level in four years.
Moody’s Analytics chief economist Mark Zandi estimates a worst-case scenario could reduce GDP by 2% and boost unemployment to 7.5% next year, up from the current 4.1%. He assigns this outcome a 15% probability. A more moderate scenario with some tariff exemptions might see unemployment peak at 5.5%, which Zandi gives a 35% probability.
Inflation and Consumer Impact
Gregory Daco, chief economist at EY, predicts consumer prices could accelerate by 1 percentage point by year-end, pushing inflation close to 4% from current levels. This could add about $1,000 in annual costs for low-income households.
The tariffs target countries central to US supply chains for consumer goods, including China, Vietnam, Taiwan, and Cambodia. Products from iPhones to clothing could see price increases, with China facing a 34% rate and Vietnam 46%.
Oxford Economics forecasts that these tariffs will raise the effective US tariff rate to nearly 30%, matching levels not seen since the 1930s. Their economic model predicts US GDP growth at 1.4% with core inflation rising to 3.9% this year.
Deutsche Bank economists estimate these actions could reduce growth by 1-1.5 percentage points this year while adding a similar amount to core inflation. PNC Financial Services economist Ershang Liang stated that “the ongoing trade war has increased the risk of near-term recession dramatically.”
Capital Economics puts the odds of a recession at about 30% and expects US CPI inflation to jump to around 4.5% later this year. Nationwide has revised down their real GDP growth estimate to a range of zero to 0.5% for Q4 2024/Q4 2025, down from previous forecasts of 1-1.5% growth.
Morningstar’s chief US economist Preston Caldwell called the tariffs “a self-inflicted economic catastrophe for the US” if maintained. The firm will likely reduce its US real GDP growth forecast for 2025 and 2026.
Despite these concerns, some crypto analysts remain optimistic about Bitcoin’s prospects. Bitwise’s Head of Research, Ryan Rasmussen, maintained their $200,000 year-end price target for Bitcoin, telling Decrypt: “Once the market settles from this ‘Liberation Day’ chaos, we’ll finally start seeing the market pullback upwards.”
A recent CBS News poll found most Americans believe the president has focused too much on tariffs, which they fear could raise prices, and not enough on lowering consumer costs.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
