Recession this year?
Yes refers to: Starts
Short Answer
Both the model and the market expect a recession to start this year, with no compelling evidence of mispricing.
1. Executive Verdict
- Since last update (~30d): Market probability for "Recession this year?" dropped -7.0pp, leading the model's downward adjustment.
- Model probability decreased -5.7pp for a 2026 recession, now at 13.8%.
- The edge (model-market) widened +1.3pp to 4.8%, reflecting the market's stronger move.
- Confidence score remained unchanged at 5.0, indicating stability in overall assessment.
- No recession expected; leading indicators show economic moderation for 2026.
- Recession probability remains low, supported by continued labor market stability.
- Still, some interest-rate sensitive sectors face low earnings expectations.
Who Wins and Why
| Outcome | Market | Model | Why |
|---|---|---|---|
| Starts | 9.0% | 13.8% | Sustained high inflation and rising interest rates may constrain economic activity. |
Current Context
Recession forecasts for 2026 remain low despite persistent challenges. As of June 2026, major institutions like US Bank and RSM US maintain a recession probability of approximately 30% over the next 12 months [^][^]. The U.S. economy is projected to grow moderately in 2026, with GDP growth forecasts generally centering around 2.1% to 2.2% [^][^][^][^]. Goldman Sachs projects stronger performance at 2.6% [^]. U.S. GDP grew at an annual rate of 2.1% in Q1 2026 [^], and the Atlanta Fed GDPNow model estimated Q2 2026 real GDP growth at 2.5% as of June 25, 2026 [^].
Persistent inflation leads to expectations of further Fed rate hikes. Inflation remains a significant concern, with expectations for it to remain elevated and potentially volatile throughout 2026 [^][^][^]. This has led to speculation and explicit forecasts of additional Federal Reserve interest rate increases [^][^][^]. Cleveland Fed inflation nowcasts for June 2026 indicate persistent inflationary pressures, with year-over-year headline CPI projected at approximately 3.96% and headline PCE at 3.90% [^]. May 2026 data shows continuing, though pressured, consumer spending, with a personal saving rate of 3.0% [^].
Geopolitical tensions and energy volatility present significant economic headwinds. Key challenges for 2026 include geopolitical tensions in the Middle East, which may cause energy price volatility, erode household purchasing power, and potentially disrupt global supply chains [^][^][^]. These factors could pressure the moderate growth trajectory.
2. Market Behavior & Price Dynamics
Historical Price (Probability)
Outcome probability
Date
The market for a 2026 recession has shown a distinct downward trend, with the probability dropping from a high of 18.0% to a current price of 9.0%. The most significant move occurred between June 13 and June 20, when the contract price fell from 17.0% to 11.0%. This decline aligns with persistent institutional forecasts that see moderate economic strength. Major firms like US Bank and RSM US have maintained recession probabilities at approximately 30% for the next 12 months, while consensus GDP growth forecasts for 2026 center on 2.1% to 2.2%. The market appears to be pricing out the near-term recession risk in line with these stable, non-recessionary economic outlooks.
Trading volume patterns suggest conviction in the downward price move. Volume was highest at the market's peak price on June 13 before diminishing as the price fell. The most recent price of 9.0% was established on zero volume, indicating the market has found a level of consensus and lacks new information to drive further activity. The contract has established a clear price range, with 18.0% acting as initial resistance and the all-time low of 8.0% serving as the primary support level. Overall, the price action reflects a clear shift in market sentiment away from recessionary fears toward an expectation of continued, albeit modest, economic growth through the end of the year.
3. Market Data
Contract Snapshot
This market resolves "Yes" if the U.S. experiences two consecutive quarters of negative GDP growth in either 2025 or 2026, as reported by the Bureau of Economic Analysis (BEA); otherwise, it resolves "No". The market closes and expires at the sooner of the event occurring or after the release of the Advance Estimate of 2026 Q4 GDP, with a final deadline of January 31, 2027, 8:25 AM EST if the event does not occur. Insider trading is prohibited for employees of Source Agencies or those with material, non-public information.
Available Contracts
Market options and current pricing
| Outcome bucket | Yes (price) | No (price) | Last trade probability |
|---|---|---|---|
| Starts | $0.10 | $0.91 | 9% |
Market Discussion
Traders are split on the likelihood of a recession this year, with the market currently pricing a low 10% chance for "Yes." Arguments for a recession ("Yes") highlight geopolitical instability (e.g., Hormuz closure), the anticipated burst of the "AI bubble," and international economic indicators like a South Korean stock market crash and Canada entering recession. Counterarguments for "No" emphasize that the stock market is propping up GDP, and that an economic downturn doesn't automatically equate to two consecutive quarters of negative GDP, noting that even marginal positive growth would prevent a "Yes" outcome.
4. What oil price per barrel, if sustained through Q3 2026, do EIA and OPEC models suggest would significantly contract U.S. consumer spending?
| Spending headwind for bottom quintile (Brent $100/barrel) | Approximately 135 basis points (Goldman Sachs) [^] |
|---|---|
| Spending headwind for all U.S. households (Brent $100/barrel) | Over 50 basis points (Goldman Sachs) [^] |
| EIA 2026 Brent crude oil average forecast | $95 per barrel (EIA) [^] |
EIA and OPEC models lack specific thresholds for consumer spending contraction. The provided research indicates that neither the U.S. Energy Information Administration (EIA) nor OPEC models cite a precise oil price per barrel that would significantly contract U.S. consumer spending if sustained through Q3 2026. However, Goldman Sachs economic modeling offers specific projections, suggesting that a sustained Brent crude oil price of $100 per barrel would introduce an approximate 135-basis-point headwind for the discretionary spending power of the lowest quintile of U.S. households. For all U.S. households in aggregate, this price level is projected to create a headwind of over 50 basis points in 2026 [^].
EIA forecasts higher prices; Federal Reserve notes evolving sensitivity. The EIA's May 2026 Short-Term Energy Outlook forecasted Brent crude oil prices to average $106 per barrel during May and June 2026, with a projected overall 2026 average of $95 per barrel [^]. The Federal Reserve Bank of Boston observed in June 2026 that the U.S. economy's sensitivity to oil shocks has changed over time. The Federal Reserve noted that a reduction in real purchasing power typically leads to decreased spending, though domestic job gains in oil-producing states can partially offset overall negative employment effects [^].
5. What do key leading indicators, like the Conference Board LEI and the Treasury yield curve, signal about a potential U.S. recession in the second half of 2026?
| Projected US GDP Growth 2026 | 1.8% [^][^][^] |
|---|---|
| Treasury Yield Curve (10-yr minus 2-yr) | approximately 27 basis points as of late June 2026 [^][^] |
| Probability of Recession by End of 2026 | 11% to 13% as of mid-to-late June 2026 [^][^][^] |
LEI suggests economic moderation, not an immediate recession, for 2026. The Conference Board's Leading Economic Index (LEI) for the U.S. showed monthly increases in April and May 2026. However, its six- and twelve-month growth rates remain negative, indicating a slower economic expansion rather than an imminent recession [^][^]. The Conference Board projects U.S. GDP growth to moderate to 1.8% in 2026, down from 2.1% in 2025. This moderation is expected to be driven by a shift from consumer-led spending to business investment as households face purchasing power fatigue [^][^][^].
Yield curve compression and prediction markets offer mixed signals. The U.S. Treasury yield curve (10-year minus 2-year) was approximately 27 basis points as of late June 2026 [^][^]. Market observers view this compression as a warning sign, though it has not signaled an immediate recessionary crash [^][^]. Concurrently, prediction markets, such as Polymarket and Kalshi, reflect a low probability of approximately 11% to 13% as of mid-to-late June 2026, that the U.S. will enter a recession by the end of 2026 [^][^][^].
6. How do mid-2026 earnings forecasts for interest-rate sensitive sectors like Real Estate compare with defensive sectors like Consumer Staples, according to FactSet and Bloomberg consensus?
| Real Estate 2026 Earnings Growth | low single-digit (mid-2026) [^][^] |
|---|---|
| Consumer Staples 2026 Earnings Growth | 6.1% (mid-2026) [^][^] |
| Consumer Staples Buy Ratings | 43% (across S&P 500 sectors) [^][^][^] |
Both sectors face negative sentiment and low earnings expectations for mid-2026. As of mid-2026, both the Real Estate and Consumer Staples sectors are characterized by significant fundamental challenges, leading to low expectations for earnings growth. The Real Estate sector is projected to have low single-digit earnings growth, while Consumer Staples has an estimated 6.1% earnings growth expectation for 2026, positioning it among the lowest across GICS sectors [^][^].
Real Estate faces significant headwinds impacting its earnings growth prospects. The sector's performance is hampered by reduced visibility for potential rate cuts, weak earnings momentum, and persistent issues observed across its various REIT subsectors. FactSet data from June 2026 further projects a year-over-year decrease in net profit margins for the Real Estate sector during Q2 2026 [^][^][^].
Consumer Staples also confronts fundamental challenges and analyst skepticism. This sector is struggling with margin pressures and faces limited pricing power. Reflecting broader skepticism from analysts, Consumer Staples registers the lowest percentage of Buy ratings (43%) among all S&P 500 sectors [^][^][^].
7. What level of persistent core inflation in Q3 2026 would likely trigger further Federal Reserve rate hikes?
| Fed's Long-Term Inflation Target | 2 percent [^] |
|---|---|
| Core PCE (May 2026) | 3.4% [^] |
| Probability of September 2026 Rate Hike (if Core PCE trends to 4.0-4.1%) | 68-70% [^][^] |
The Federal Reserve targets 2 percent core PCE inflation. The central bank's long-term inflation goal is 2 percent for the Personal Consumption Expenditures (PCE) price index, with core PCE being its preferred measure [^]. As of May 2026, the Atlanta Fed's Underlying Inflation Dashboard reported the core PCE at 3.4%, indicating that inflation remains significantly above the Fed's target [^].
Persistent core inflation above 3.5% could trigger rate hikes. If core PCE inflation stalls at or above 3.5% for several consecutive months in 2026, it would likely increase the probability of further Federal Reserve rate hikes [^][^]. Should core PCE inflation trend toward 4.0% to 4.1% in Q3 2026, market participants are currently pricing in a 68-70% probability of a September rate hike, as the Federal Reserve's current patience is expected to diminish under such conditions [^][^].
8. How do Q2 2026 Personal Consumption Expenditures (PCE) and University of Michigan Consumer Sentiment reports support the 'soft landing' scenario?
| May 2026 Nominal PCE | 0.7% monthly increase [^][^] |
|---|---|
| May 2026 PCE Price Index | 4.1% year-over-year [^] |
| June 2026 Consumer Sentiment | 49.5 [^][^][^][^] |
Q2 2026 PCE data shows mixed signals for a soft landing. May 2026 Personal Consumption Expenditures (PCE) data indicated a 0.7% monthly increase in nominal PCE and a 0.3% rise in real PCE, demonstrating continued resilience in consumer spending [^][^]. However, the PCE price index increased 4.1% year-over-year, and core PCE advanced 3.4% year-over-year, marking the highest levels since early-to-mid 2023. These elevated inflation figures, remaining above the Federal Reserve's 2% target, complicate the 'soft landing' narrative [^]. Furthermore, this resilient spending is increasingly supported by wealth rather than real income [^][^][^][^][^].
Consumer sentiment improved in June but remains historically low. The University of Michigan Consumer Sentiment Index rebounded to 49.5 in June 2026 from a record low of 44.8 in May [^][^][^][^]. This improvement was largely attributed to moderating gasoline prices and a decrease in long-term anxiety related to the Iran conflict [^][^][^][^]. Despite this rebound, consumer sentiment remains historically depressed, and inflation expectations for the upcoming year are still elevated at 4.6% [^][^][^][^]. Overall, as of June 2026, the 'soft landing' narrative maintains credibility but remains fragile, with ongoing concerns about inflation, geopolitical risks, and the potential for further Federal Reserve rate hikes [^][^][^][^][^].
9. What Could Change the Odds
Key Catalysts
As of June 27, 2026, economists and forecasting models generally do not view a US recession as imminent, with recession risk scores often characterized as moderate, for instance, 38/100 [^] [^] . The labor market exhibits continued stability [^][^]. Real GDP grew at a 1.60% annual rate in Q1 2026 (BEA second estimate, May 28, 2026) [^][^][^][^][^]. The unemployment rate was 4.30% in May 2026, while ISM Manufacturing at 54.0 and ISM Services at 57.0 in May 2026 indicate ongoing expansion [^][^][^][^][^]. This suggests a slow expansion with elevated downside risk, rather than an imminent recession as the base case [^][^][^][^][^][^]. The Atlanta Fed GDPNow model estimate for real GDP growth in Q2 2026 was 3.0 percent as of June 17, 2026 [^][^][^].
Monetary policy expectations have shifted toward a "higher for longer" stance [^] . Some forecasts anticipate rate hikes in the latter half of 2026 due to persistent inflation, while others expect the Federal Reserve to hold rates steady through year-end, with the first easing anticipated in early 2027 [^][^][^][^]. The latest market commentary points to a hawkish Fed backdrop, sticky inflation, and stronger data that collectively maintain restrictive policy, potentially slowing growth further [^][^][^][^][^]. Upcoming employment releases, including JOLTS, ADP, ISM Manufacturing, jobless claims, and Nonfarm Payrolls in June 2026, are key data points for assessing economic momentum [^][^][^][^][^].
Bullish catalysts include AI-driven capital expenditure, defense spending, and labor market resilience [^] [^] [^] [^] . Prediction markets show a 58.5% probability that annual US GDP growth will exceed 2.5% in 2026, though Q1 GDP contraction data tempers this conviction [^][^][^]. Conversely, bearish catalysts involve geopolitical tensions, specifically energy disruptions from the Strait of Hormuz conflict, persistent inflation, and potential consumer fragility due to low savings [^][^][^][^]. Global growth for 2026 is projected to remain steady but uneven, with the IMF estimating 3.3% global growth, reflecting a "narrow, sub-trend" expansion [^][^][^].
Key Dates & Catalysts
- Expiration: February 07, 2027
- Closes: January 31, 2027
10. Decision-Flipping Events
- Trigger: As of June 27, 2026, economists and forecasting models generally do not view a US recession as imminent, with recession risk scores often characterized as moderate, for instance, 38/100 [^] [^] .
- Trigger: The labor market exhibits continued stability [^] [^] .
- Trigger: Real GDP grew at a 1.60% annual rate in Q1 2026 (BEA second estimate, May 28, 2026) [^] [^] [^] [^] [^] .
- Trigger: The unemployment rate was 4.30% in May 2026, while ISM Manufacturing at 54.0 and ISM Services at 57.0 in May 2026 indicate ongoing expansion [^] [^] [^] [^] [^] .
12. Historical Resolutions
No historical resolution data available for this series.
