As expected, the risk of a national recession beginning in the United States at some time in the next twelve months has increased by 0.3% over the last six weeks. As of Thursday, 2 August 2018, the day after the Fed's last two-day meeting, the risk of a recession beginning sometime between 2 August 2018 and 2 August 2019 stands at 1.1%, which is roughly a 1 in 91 probability.
That small increase to a still very-low level is mainly attributable to the Fed's recent series of quarter point rate hikes, where its most recent was announced on 13 June 2018. Meanwhile, a small narrowing of the U.S. Treasury yield curve has taken place, as measured by the spread between the yields of the 10-Year and 3-Month constant maturity treasuries, has also made a small contribution toward the perceptible increase in future recession risk during the last six weeks.
For those playing the recession watch game at home, the Recession Probability Track visualizes how the risk of recession has slowly risen to the level we recorded on 2 August 2018.
We anticipate that the probability of recession will continue to rise through the end of 2018, since the Fed is expected to hike the Federal Funds Rate again in September 2018. As of the close of trading on Friday, 3 August 2018, the CME Group's Fedwatch Tool was indicating a 96% probability that the Fed will hike rates by a quarter percent to a target range of 2.00% to 2.25% at the end of the Fed's next meeting on 26 September 2018. Looking forward to the Fed's 19 December 2018, the Fedwatch Tool is currently indicating a 69.4% probability of another quarter point rate hike being announced before the end of the year.
After that, it looks like the Fed might take a breather in announcing further rate hikes, perhaps until the conclusion of its June 2019 meeting.
If you want to predict where the recession probability track is likely to head next, you are more than welcome to take advantage of our recession odds reckoning tool, which like our Recession Probability Track chart, is also based on Jonathan Wright's 2006 paper describing a recession forecasting method using the level of the effective Federal Funds Rate and the spread between the yields of the 10-Year and 3-Month Constant Maturity U.S. Treasuries.
Just plug in the most recent data available, or the data that would apply for a future scenario that you would like to consider, and compare the result you get in our tool with what we've shown in the most recent chart we've presented. The links below present each of the posts in the current series since we restarted it in June 2017.
Previously on Political Calculations
- The Return of the Recession Probability Track
- U.S. Recession Probability Low After Fed's July 2017 Meeting
- U.S. Recession Probability Ticks Slightly Up After Fed Does Nothing
- Déjà Vu All Over Again for U.S. Recession Probability
- Recession Probability Ticks Slightly Up as Fed Hikes
- U.S. Recession Risk Minimal (January 2018)
- U.S. Recession Probability Risk Still Minimal
- U.S. Recession Odds Tick Slightly Upward, Remain Very Low
- The Fed Meets, Nothing Happens, Recession Risk Stays Minimal
- Fed Raises Rates, Recession Risk to Rise in Response