A U.S. recession has been on and off investors’ minds for years.
In 2023, many were anticipating a financial crash in 2024 due to the high interest rates, and though Donald Trump’s re-election momentarily swept away the fears, his presidency reignited them.
By press time on March 20, 2025, some Wall Street experts even believe – though they highlighted that it is, at this stage, impossible to be certain – that America may have already entered another recession.
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President Trump’s policies – and primarily the trade war he is, apparently, looking to start against the entire world – have been a major driver of the fears. However, technological breakthroughs in China have also sent shivers through the increasingly important technology sector.
Why a 2025 Recession appears increasingly likely
As of March 20, a strange coincidence appears to support the idea that a recession may be coming in the near future while simultaneously explaining the stock market’s continued ability to generate daily rallies.
Specifically, the Federal Reserve maintains a recession probability model based on yield curves.
A yield curve is, as the name implies, a curve on a graph that tracks the yield of fixed-income securities against the time they have until maturity.
Thus far, the Fed’s model has been fairly reliable, as it showcased a probability rise ahead of most U.S. recessions.
Though this fact might indicate American investors, workers, and consumers are out of the woods given the recent drop in the odds of a crash, data Finbold retrieved on March 20 from Bravos Research, an investment research firm, indicates the opposite is the case.
The Fed’s model tends to drop sharply as the economy exits a recession, as there is newfound ground for recovery. However, there have been a handful of instances in which the probability fell rapidly with no preceding crash, as Bravos pointed out.
The uncommon recovery-into-recession pipeline
Unfortunately for U.S. traders, the two previous cases took place in 1960 and 1999. A 10-month recession started in April 1960, and the famed Dot-com crash began in 2000, shortly after the preceding bubble peaked on March 10 of the same year.
Should the Federal Reserve’s model prove as accurate in its exceptions as in its intended purpose, the second quarter (Q2) of 2025 might be a period of euphoric rise, only to be switched by a massive crash mere months later.
Featured image via Shutterstock
