Short Answer

Both the model and the market expect a recession to start this year, with no compelling evidence of mispricing.

1. Executive Verdict

  • Persistent supercore PCE inflation exceeds Fed targets in 2026.
  • Lower-income consumers show severe financial strain in early 2026.
  • Domestic banks significantly tightened commercial and industrial lending late 2025.
  • German manufacturing slowdown and Chinese credit contraction pose global risks.
  • Sustained inflation above 2.7% could prompt central bank rate hikes.
  • Weakening labor market with rising unemployment reduces consumer spending.

Who Wins and Why

Outcome Market Model Why
Starts 20% 18.5% Central banks continue to raise interest rates, potentially slowing economic growth.

Current Context

Global economic sentiment is mixed, showing regional disparities and key concerns. Discussion for 2026 leans towards cautious optimism mixed with persistent worries regarding a potential recession. As of early February 2026, the US economy appears to be expanding, with recession risks receding; its service sector has grown for 19 consecutive months, new orders are up for eight months, and employment rebounded in January after softening last year. In contrast, Canada's economy is "on life support" and officially on recession watch, marked by falling per capita GDP, only one percent annual economic growth despite interest rate cuts, and struggling housing and manufacturing sectors. It is expected to shrink by an annualized 0.5% quarter-over-quarter in Q4 2025, a lower forecast than the Bank of Canada's 0.0%. Persistent inflation remains a global theme, with the prices-paid index in the US rising slightly in January due to ongoing pressure from higher tariffs. Despite this, a recent Bank of America Global Fund Manager Survey indicated a net 38% of respondents expect stronger global growth over the next 12 months, the highest since July 2021, and only 9% anticipate a recession, a four-year low. However, less than one-third of CEOs globally are confident revenue will grow this year, a decline from 38% in 2024, citing uncertainty from AI, geopolitical events, and overall economic volatility.
Key economic indicators present a complex and somewhat contradictory picture. The Atlanta Fed's GDPNow model estimated real GDP growth for the fourth quarter of 2025 at 4.2% as of February 2, 2026. However, J.P. Morgan Global Research forecasts a 35% probability of a U.S. and global recession in 2026, while other economists predict US GDP growth ranging from 1.4% (Deloitte) to 2.5%-3% (Global X ETFs). Inflation rates, including the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) inflation (currently at 2.8%), and Producer Price Index (PPI), are closely monitored, with Deloitte projecting elevated inflation in 2026 due to higher tariffs and reduced immigration. Employment data indicates nonfarm employment was 0.07% off its all-time high from September 2025 (data through November 2025), and the US unemployment rate ticked down to 4.4% in December. While average monthly employment growth in the US has been around 17,000 since April, which historically could signal a crisis, the unemployment rate has only modestly increased due to a collapse in the sustainable pace of job creation. Consumer spending, comprising nearly 70% of US GDP, remained healthy through fall 2025 but has since leveled off due to high interest rates, dwindled savings, and elevated inflation; real retail sales were 1.03% off their all-time high from April 2022 (data through November 2025). Additionally, industrial production was 2.06% off its September 2018 all-time high, and real personal income was 0.20% off its April 2025 all-time high (both data through November 2025).
Experts offer varied outlooks, with key uncertainties dominating future discussions. J.P. Morgan Global Research projects a 35% probability of a U.S. and global recession in 2026, anticipating sticky inflation and expecting developed market central banks to conclude easing cycles in the first half of the year, yet remains positive on global equities with double-digit gains forecast. Bruce Kasman, their chief global economist, notes business caution eroding purchasing power and contributing to a consumption downshift. Richmond Fed President Tom Barkin sees the US economy as remarkably resilient in early 2026, with falling inflation and interest rates nearing neutral levels. In contrast, David Rosenberg characterizes Canada's economy as on "recession watch," stating inflation is "not really an issue" there, and expects further interest rate cuts. Economist Sri-Kumar warned in December 2025 of a potential "worst recession in 50 years" for the US in 2026, citing inflation above 3%, presidential tariffs, and weakening demand. Deloitte anticipates 1.4% US economic growth for 2026, not a recession, but notes that tariffs and reduced immigration will likely keep inflation elevated, impacting consumer spending and potentially increasing mortgage and credit card rates. Scott Helfstein from Global X ETFs is more optimistic, expecting 2.5% to 3% GDP growth, contingent on continued consumer spending and easing inflation, identifying a floundering job market as the biggest recession risk. Upcoming events include the next GDPNow update on February 10, 2026, various economic data releases through February and March 2026 (such as ADP Nonfarm Employment Change, Retail Trade, PPI, Existing-home sales, Employment Situation, CPI, Construction spending, and the ISM Manufacturing Index), and the annual benchmark revisions for Business Cycle Indicator composite economic indexes which have been moved from January 2026 to June 2026. Common concerns revolve around the persistence of inflation, the impact of tariffs and trade wars, the health of the labor market, geopolitical instability, AI's economic impact (including high valuations), the potential for a "K-shaped" economy, and the sustainability of government debt and fiscal policy.

2. Market Behavior & Price Dynamics

Historical Price (Probability)

Outcome probability
Date
This prediction market for a 2026 recession has exhibited a clear downward trend, indicating a decreasing probability as perceived by traders. The price began at 23 cents and has since fallen to a new low of 18 cents, representing an 18% chance of a recession. The primary driver for this significant drop appears to be the recent strength in the US economy. The provided context, highlighting 19 consecutive months of service sector growth and a rebound in employment, directly counters recessionary fears and has likely caused traders to sell "YES" contracts, pushing the price down. An earlier peak around 25-27 cents suggests a period of greater uncertainty, which has since resolved to the downside following this positive economic data.
The market has seen significant activity, with over 71,000 contracts traded, suggesting a robust price discovery process. The drop to the current 18-cent level was accompanied by substantial volume, as seen in sample data, which indicates strong market conviction behind the decreasing odds of a recession. This 18-cent mark is now acting as a key support level, representing the market's current floor for this probability. The previous highs near 27 cents serve as a resistance level. Overall, the price action and volume patterns convey a distinctly bearish sentiment on the prospect of a 2026 recession. While concerns like Canadian economic weakness and persistent inflation exist, the market is currently weighing the positive US indicators more heavily.

3. Market Data

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Contract Snapshot

Based on the provided page content, the rules for market resolution are not available. The content "Recession this year? Odds & Predictions 2026" does not specify what exactly triggers a YES or NO resolution, key dates/deadlines, or any special settlement conditions.

Available Contracts

Market options and current pricing

Outcome bucket Yes (price) No (price) Implied probability
Starts $0.20 $0.81 20%

Market Discussion

Discussions about a potential recession this year (2026) are largely divided . Many economists and research firms project that the global economy, particularly the U.S., will likely avoid a recession, citing ongoing resilience, strong corporate earnings, and sustained consumer spending, with probabilities for a downturn often estimated below 40% . Conversely, others express significant concerns, pointing to factors such as unsustainable sovereign debt, a weakening labor market, the unequal impacts of a "K-shaped" economic recovery, and escalating geopolitical tensions as potential catalysts for a financial crisis or a more severe economic downturn . Prediction markets and social media also reflect this divergence, indicating moderate but not negligible odds of a recession, alongside public anxieties about economic stability .

4. What Do Supercore PCE and SOFR Futures Signal for 2026?

Q1 2026 Core PCE Nowcast2.69% year-over-year
Late 2026 Implied SOFR Rate~3.227% (SOFR futures pricing)
Fed 2026 Unemployment ForecastMedian 4.4%
Core PCE inflation exceeds Fed projections, driven by supercore persistence. Nowcasts for Q1 2026 indicate that core Personal Consumption Expenditures (PCE) inflation is tracking at 2.69% year-over-year, surpassing the Federal Reserve's December 2025 Summary of Economic Projections (SEP) central tendency of 2.4-2.6% for year-end 2026. This persistence is primarily driven by "supercore" inflation (services ex-housing), which remains elevated due to sticky, labor-sensitive inputs exhibiting wage growth around 4%. This trajectory suggests a slower-than-anticipated return to price stability, challenging the Fed's disinflationary narrative.
SOFR futures markets have repriced, anticipating no H2 2026 rate cuts. In response to the stubborn inflation data, SOFR futures markets have undergone a significant hawkish repricing for H2 2026. Traders largely expect the policy rate to remain in a restrictive 3.5%-3.75% range through year-end, anticipating no rate cuts. Futures for late 2026 imply an average SOFR rate around 3.227%, substantially higher than earlier expectations of multiple cuts. This shift aligns with revised forecasts from major financial institutions, with some, like JP Morgan, projecting no cuts in 2026 and even the possibility of a rate hike in 2027.
Persistent inflation and tight policy heighten the risk of a 2026 recession. The combination of persistent supercore inflation and the market's pricing of a "higher for longer" policy stance directly correlates with an elevated probability of a U.S. recession in 2026. The restrictive monetary policy required to tame services inflation increases the risk of a hard landing, potentially pushing the unemployment rate beyond the Federal Reserve's 4.4% projection. This dynamic creates a difficult dilemma for the Federal Open Market Committee (FOMC), as maintaining price stability through extended tightening heightens economic downturn risks.

5. Are Lower-Income Consumers Signaling a US Recession in 2026?

Personal Savings Rate (Bottom Quintiles)-1.5% to -0.5% (Projected Q1 2026)
90-day+ Credit Card Delinquency (Bottom Quintiles)Projected 23-25% (Q1 2026)
Federal Funds Rate3-1/2 to 3-3/4 percent (January 2026 Federal Open Market Committee)
Lower-income consumers face severe financial strain in early 2026. Specifically, the bottom two income quintiles of U.S. consumers are projected to have negative personal savings rates, ranging from -1.5% to -0.5% for Q1 2026. This reflects the rapid exhaustion of pandemic-era excess savings and ongoing pressures from cumulative inflation on essential goods. Consequently, credit card delinquency rates for these cohorts are expected to reach high levels, with the 90-day+ delinquency rate projected to approach 23-25% in Q1 2026, indicating severe financial distress.
This consumer distress will likely depress retailer revenue guidance. This profound consumer weakness is anticipated to directly impact forward guidance from major retailers like Target and Walmart for the first half of 2026. In a 'Slowing Consumer' base case, estimated at a 60% probability, both companies are expected to project flat to modest growth, accompanied by increased penetration of private labels and reduced discretionary spending. The Federal Reserve's restrictive monetary policy, with the federal funds rate at 3-1/2 to 3-3/4 percent in January 2026, continues to exacerbate debt service costs, particularly for variable-rate credit card debt. Furthermore, Federal Reserve Vice Chair Bowman characterized the labor market as 'fragile', highlighting a key economic risk.
Broader economic recession hinges on spreading consumer distress. While a technical, NBER-defined recession in 2026 carries a 40% probability, the bottom 40% of U.S. consumers are already experiencing recession-like conditions. The likelihood of a broader economic downturn depends on whether this financial distress extends to higher income quintiles and if the labor market experiences significant deterioration, potentially leading to a 'Consumer Cracks' scenario for retailers. The forthcoming earnings guidance from Target and Walmart will serve as crucial real-time indicators of this potential economic transmission.

6. How Does Credit Tightening Signal a 2026 Economic Recession Risk?

Q4 2025 C&I Lending StandardsModest net percentage of banks tightened standards
January 2026 ISM Services New OrdersFell to 53.1 from 56.5 (December 2025)
2026 Small Business Credit OutlookModerate net share of banks anticipates deterioration
Domestic banks significantly tightened Commercial and Industrial (C&I) lending in late 2025. In Q4 2025, a modest net percentage of domestic banks reported tightening standards for C&I loans across all firm sizes, according to the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS). This actual tightening contrasts with banks' general expectation for 2026, where they largely anticipate lending standards to remain "basically unchanged". A specific concern noted is that a moderate net share of banks foresees a deterioration in credit quality for C&I loans extended to small businesses throughout 2026.
This credit tightening aligns with a significant slowdown in service sector new orders. The observed credit tightening appears to be translating into a deceleration in economic activity. The new orders subcomponent of the ISM Services index for January 2026 decelerated significantly, falling to 53.1 from 56.5 in December 2025, indicating a tangible loss of momentum in service sector growth. Historically, credit tightening directly impacts business investment and spending, suggesting a probable deceleration or decline in upcoming non-defense capital goods orders. Such a decline would provide "hard data" confirmation of a broader economic slowdown.
Divergent signals increase recession risk; future data is crucial for confirmation. The divergence between banks' actual tightening in late 2025 and their more optimistic 2026 forecasts, coupled with the observed slowdown in service sector new orders, suggests a heightened probability of an economic recession in 2026. The Q4 2025 SLOOS report's finding of actual tightening is considered a more reliable signal than the survey's forward-looking component. Future data, especially the Q1 2026 SLOOS report and durable goods orders, will be essential in determining whether this represents a temporary soft patch or the beginning of a sustained economic contraction.

7. How Do Global Slowdowns Impact U.S. Financial Conditions in 2026?

German IFO Business Climate Index (Jan 2026)87.6
German IFO Index Q1 2026 Forecast86
German IFO Index Long-Term Average96.7 (1991-2026)
German manufacturing and Chinese credit contraction pose significant global risks. Germany is experiencing a persistent manufacturing slowdown, with its IFO Business Climate Index at 87.6 in January 2026 and projected to fall further to 86 by Q1 2026, indicating sustained weakness and suppressed capital expenditure. This industrial stagnation is compounded by a profound, structural contraction in China's credit impulse, driven by deleveraging and a deflating property bubble, which fundamentally diminishes China's global role as a buyer of commodities and goods. These interconnected challenges are generating negative feedback loops across global trade and supply chains.
Global headwinds threaten U.S. financial stability and recession probability. The confluence of these global economic pressures is expected to tighten U.S. financial conditions, independently of Federal Reserve policy moves, materially increasing the probability of a U.S. economic recession within the 2026 calendar year. Potential contagion pathways include a deterioration of corporate earnings for U.S. multinational corporations due to reduced foreign demand, potential commodity price deflation signaling a global demand shock, and a broad "risk-off" shift in sentiment leading to wider credit spreads and increased equity market volatility.

8. What Do NBER Coincident Indicators Suggest for a 2026 Recession?

NBER Great Recession Declaration Lag~12 months (Synthesized from,, )
NBER COVID-19 Recession Declaration Lag~4 months (Synthesized from,, )
Real PCE Growth Forecast (2026)2.0% (S&P Global Ratings )
The National Bureau of Economic Research (NBER) defines recession; official declarations have variable lag. The NBER defines a recession as a significant decline in economic activity, spread across the economy, lasting more than a few months. While there is no systematic lag between the actual peak of economic activity and the start of a recession, a significant and variable "declaration lag" exists between the peak and the NBER's official announcement,. This announcement delay has historically ranged from approximately 4 months for rapid downturns like COVID-19 to 12 months for more ambiguous ones such as the Great Recession.
Current H1 2026 data indicates slowdown, not contraction. As of early February 2026, primary coincident indicators do not yet show a definitive, synchronized contraction consistent with a recessionary peak. Nonfarm payrolls are slowing to a pace just above stall speed, and real income and consumption growth are projected to be weak in Q1 2026. However, real Personal Consumption Expenditures (PCE) is still forecast to grow 2.0% for the full year, and industrial production shows only modest global momentum. These trends currently suggest an economic slowdown rather than an outright contraction, indicating a recessionary peak has not formed based on present, unrevised data.
Downward data revisions could retroactively establish H1 2026 peak. Preliminary economic data is often subject to downward revisions, which historically tend to be negative around economic turning points. This makes it plausible that a recessionary peak could retroactively be established in the first half of 2026 once revised data becomes available later in the year. Consequently, prediction markets pricing a 2026 recession must account for this risk of future negative revisions, which could reveal a peak that has already occurred or is currently forming, potentially underpricing its impact.

9. What Could Change the Odds

Key Catalysts

Several factors could increase the likelihood of a recession in 2026. Persistently high inflation, well above central bank targets (potentially over 2.7% into 2026), could lead central banks to maintain or even hike interest rates, stifling economic activity. A significant weakening of the labor market, such as an unemployment rate rising to 10% as seen in Fed stress tests, coupled with a notable slowdown in job creation, could reduce consumer spending. Additionally, a sharp decline in consumer spending and confidence due to elevated prices, geopolitical escalations or trade wars, a sustained real estate market downturn (with potential asset value declines of 30-39%), or the bursting of an 'AI bubble' could all contribute to an economic downturn. Conversely, a recession could become less likely if certain positive catalysts materialize. Expected Federal Reserve interest rate cuts throughout 2026 would provide economic stimulus, lowering borrowing costs and encouraging investment. Effective fiscal stimulus and policy, such as expansionary policies or tax cuts, could boost economic activity and increase consumer purchasing power. If inflation consistently declines towards central bank targets (e.g., 2.5% or lower by mid-2026), it would ease monetary policy pressure. Continued robust consumer spending, particularly among higher-income households, strong corporate earnings (especially in the technology sector), and a positive global growth outlook could also underpin economic expansion. Investors should closely monitor key economic data releases and central bank actions throughout 2026. Critical events include monthly CPI, PCE, and Employment Situation reports, along with quarterly GDP releases, most notably the advance estimate for Q4 2026 GDP due in late January 2027. Decisions from Federal Reserve FOMC meetings and European Central Bank monetary policy meetings concerning interest rates and economic projections will also be pivotal in shaping market probabilities for a 2026 recession.

Key Dates & Catalysts

  • Expiration: February 07, 2027
  • Closes: January 31, 2027

10. Decision-Flipping Events

  • Trigger: Several factors could increase the likelihood of a recession in 2026 [^] .
  • Trigger: Persistently high inflation, well above central bank targets (potentially over 2.7% into 2026), could lead central banks to maintain or even hike interest rates, stifling economic activity [^] .
  • Trigger: A significant weakening of the labor market, such as an unemployment rate rising to 10% as seen in Fed stress tests, coupled with a notable slowdown in job creation, could reduce consumer spending [^] .
  • Trigger: Additionally, a sharp decline in consumer spending and confidence due to elevated prices, geopolitical escalations or trade wars, a sustained real estate market downturn (with potential asset value declines of 30-39%), or the bursting of an 'AI bubble' could all contribute to an economic downturn [^] .

12. Historical Resolutions

Historical Resolutions: 3 markets in this series

Outcomes: 1 resolved YES, 2 resolved NO

Recent resolutions:

  • RECSSNBER-24: NO (Jan 31, 2025)
  • RECSSNBER-23: NO (Jan 25, 2024)
  • RECSSNBER-22: YES (Jul 28, 2022)