The probability the U.S. economy will experience an official period of recession continued to recede during the past six weeks.
The probability peaked at 80.8% on 25 July 2023, just before the U.S. Federal Reserve announced it would hike the Federal Funds Rate by another quarter point, bringing its target range up to 5.25-5.50%. The Fed has since held rates steady at that level and is expected to announce it will continue doing so after its Federal Open Market Committee concludes its two-day meeting on 1 November 2023.
Since July, the probability of a recession starting sometime in the next 12 months has declined. That change coincides with the spread between the constant maturity 10-year and 3-month U.S. Treasuries becoming less inverted in the weeks since the recession probability peaked, with the 3-month yield holding relatively steady while the 10-year yield increased. The 10-year yield recently peaked just under 5% on 19 October 2023.
However, the U.S. treasury yield curve is still inverted and the probability of recession remains elevated. Here's the latest update to the Recession Probability Track illustrating how things stand going into the FOMC's two-day meeting:
The Recession Probability Track indicates the probability a recession will someday be officially determined to have begun sometime in the next 12 months. For this update, that applies to the dates between 30 September 2023 and 30 September 2024, where the probability is 70.6%.
The probability of recession peaked at 80.8% on 25 July 2023, which makes the period from July 2023 through July 2024 the mostly likely period in which the National Bureau of Economic Research will someday identify a point of time marking the peak in the U.S. business cycle before it entered a period of contraction.
Analyst's Notes
The Recession Probability Track is based on Jonathan Wright's yield curve-based recession forecasting model, which factors in the one-quarter average spread between the 10-year and 3-month constant maturity U.S. Treasuries and the corresponding one-quarter average level of the Federal Funds Rate. If you'd like to do that math using the latest data available to anticipate where the Recession Probability Track is heading, we have a very popular tool to do the math.
We will continue to follow the Federal Reserve's Open Market Committee's meeting schedule in providing updates for the Recession Probability Track until the U.S. Treasury yield curve is no longer inverted and the future recession odds retreat below a 20% threshold.
For the latest updates of the U.S. Recession Probability Track, follow this link!
Previously on Political Calculations
We started this new recession watch series on 18 October 2022, coinciding with the inversion of the 10-Year and 3-Month constant maturity U.S. Treasuries. Here are all the posts-to-date on that topic in reverse chronological order, including this one....
- U.S. Recession Probability Continues Receding on All Hallow's Eve
- U.S. Recession Probability Starts to Recede
- Probability of Recession Starting in Next 12 Months Breaches 80%
- U.S. Recession Probability on Track to Rise Past 80%
- U.S. Recession Probability Reaches 67%
- U.S. Recession Probability Shoots Over 50% on Way to 60%
- Recession Probability Nearing 50%
- Recession Probability Ratchets Up to Better Than 1-in-6
- U.S. Recession Odds Rise Above 1-in-10
- The Return of the Recession Probability Track
Image credit: Looking through a dark crystal ball photo by Zaeo on Unsplash.