Polymarket Recession Bets Drop to 26% as Traders Dismiss Fed Staff Warning Signals

• Polymarket recession odds dropped from 66% peak to 26% probability for U.S. recession.
• Trading volume exceeds $6.6 million as bettors shift toward economic resilience. 
• Fed assessment suggests 50% recession probability as markets price lower risk levels.

Prediction market speculators have grown more optimistic about American economic prospects. Polymarket bettors now assign only a 26% probability of recession by the close of 2025. This represents a sharp turn from the 66% probability at the March peak, when economic uncertainty reigned supreme and recession fears burned hot across financial markets.

The decline in recession betting has been steep and relentless in recent months. Figures put the odds at 66% on May 2, fell to 50% on May 12, and kept falling to 30% on June 2. The latest 26% reading indicates that traders are increasingly convinced the economy is robust, despite continued concerns about inflation.

Fed Staff Assessment Contradicts Market Optimism

The growing discrepancy between the Federal Reserve’s internal forecasts and prediction market sentiment has come into the spotlight. This discrepancy was recently brought to the forefront by David Rosenberg, President and Founder of Rosenberg Research & Associates Inc., who cited FOMC minutes that showed Fed staff concerns about the direction of the economy.

According to Rosenberg’s interpretation of the Federal Reserve’s recent communications, staff economists see a recession as “nearly as likely as the baseline forecast,” implying about a 50% chance of an economic downturn. This internal outlook stands in stark contrast to Polymarket traders, who currently estimate the probability at just 26%.

The volume of trading activity on Polymarket has exceeded $6.6 million, demonstrating strong participation and confidence among bettors despite conflicting signals from monetary policy officials. This trading activity suggests that market participants either disagree with the Fed staff’s assessments or believe that external factors will prevent a recession, despite the central bank’s concerns.

Rosenberg’s remark that “there is an asset class anywhere remotely close to being priced for that probability” underscores a disconnect between market behavior and the Fed’s internal outlook. While Fed staff see a 50% chance of recession, traditional financial markets seem more aligned with Polymarket’s much lower recession odds.

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Several factors could explain the optimistic shift in Polymarket odds. Stronger-than-expected employment data, resilient consumer confidence metrics, and corporate earnings that have exceeded expectations may have convinced traders that recession risks are diminishing. Additionally, potential policy changes and fiscal measures could influence market participant expectations.

However, the Fed staff warning suggests underlying economic vulnerabilities persist despite surface-level strength indicators. Banking sector stress, commercial real estate challenges, and persistent inflation pressures continue to create headwinds that could materialize into an overall economic contraction.