Major Banks Warn That Recession Risks Are Rising
The financial markets are signaling that the risk of recession is becoming increasingly evident as uncertainties related to tariffs and signs of weakening economic conditions spread across Wall Street. According to an analytical model from #JPMorgan Chase & Co., the probability of recession priced in by the market has increased from 17% at the end of November to 31% by March 5. Meanwhile, Goldman Sachs has also raised its recession risk forecast from 14% to 23% since January.
Important economic indicators such as the 5-year Treasury yield and commodity prices indicate an even higher likelihood of recession, reaching up to 50%. These are signs that economic risks are increasingly large, forcing investors and businesses to face significant uncertainty in the near future.
Tariffs and Declining Economic Confidence – Factors Elevating Recession Risk
Market volatility is becoming more tense as President Donald Trump reaffirms plans to adjust the global trade order, although he acknowledges that this could bring many difficulties. In particular, the new tariffs imposed on Canada, Mexico, and China from March 4 are eroding the confidence of businesses and consumers.
JPMorgan notes that economic data in the US is becoming less favorable, with production activity nearly stagnant, consumer confidence dropping to its lowest level since 2021, personal spending unexpectedly declining, and the housing market showing disappointing results. These are alarm signals for the world's largest economy.
Conflicting Forecasts, But Risks Cannot Be Ignored
Although the probability of recession is not yet certain, major financial institutions acknowledge that risks are increasing. Mohamed A. El-Erian, president of Queens' College at Cambridge, has raised the recession risk forecast from 10% to 25-30% in just the first two months of 2025.
Data from JPMorgan shows that the prices of 5-year Treasury bonds, commodities, and small-cap stocks are currently pricing in a recession risk of 50%. However, the investment-grade credit market is only reflecting a recession risk of 8%, still significantly higher than the nearly 0% level at the end of 2024.
Goldman Sachs' model based on various cross-asset indicators, including credit spreads and the Cboe Volatility Index (VIX), is also reflecting an increasing level of concern. In particular, an index tracking expectations about the interest rates of #Fed in the next 12 months indicates a 46% probability of recession, a figure that cannot be ignored.
Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, stated: "The biggest change comes from how the market is pricing the Fed's interest rate cuts and the yield curve, factors that often signal potential recession risks." Additionally, the VIX index is also showing signs of increase, a phenomenon that often occurs before or during recession periods.
Will the Recession Scenario Resemble 2023?
Even though the market reflects a higher risk of recession, it is important to note that economic forecasts from the market were inaccurate in 2023. At that time, many worried that the Fed's tightening monetary policy would push the US economy into recession, but ultimately, consumer spending remained robust, and the economy did not fall into crisis.
This time, the context is somewhat different: inflation remains high, economic growth shows signs of slowing down, but the labor market remains stable with an unemployment rate below 4%. Additionally, a large portion of the negative data comes from surveys rather than actual figures, leading many experts to believe that it is too early to conclude that a recession is imminent.
Cayla Seder, a macro strategist at State Street Global Markets, argues: "It is too early to conclude that US economic growth is completely declining. However, growth momentum is becoming more concentrated, meaning the US economy has less growth momentum."
Impact on the Cryptocurrency Market – Opportunity or Risk?
In the context of increasing recession risks, the USD has weakened significantly. The USDX has dropped from 107.4 to 104.3 since early March, according to data from the #FXCE exchange. This could provide an opportunity for Bitcoin and the crypto market, as history shows that when the USD weakens, capital tends to shift to non-traditional assets like gold and cryptocurrencies.
On the other hand, if the US economy does indeed enter a recession, this could trigger a wave of sell-offs in the financial markets in general, including crypto. Institutional investors may withdraw capital from risky assets like $BTC in search of safety, similar to what happened in early 2020 when the pandemic broke out.
However, another scenario could occur: If the Fed is forced to cut interest rates faster to support the economy, this could help the crypto market recover strongly. Bitcoin and digital assets could benefit from loose monetary policy, just as they reacted after previous rate cuts.
Conclusion: Caution but Not Panic
The risk of recession in the US is increasing, and the financial markets are reflecting that. However, this does not mean that a crisis will happen immediately. Investors need to closely monitor key economic indicators and moves from the Federal Reserve (Fed) to make informed decisions.
For the crypto market, a weaker USD could be a positive signal, but if a recession does occur, selling pressure may emerge before the market finds a balance. Therefore, investors should manage risks closely, diversify their portfolios, and closely monitor macroeconomic developments in the near future.
