The odds a U.S. recession will someday be determined to have begun between January 2025 and January 2026 has dropped to a little higher than a one-in-four chance.
This assessment is based on the yield curve-based recession forecasting model developed by Jonathan Wright in 2006. Going by this model, the odds of a U.S. recession being found to have started within the next year is a little over 27%.
The main factor lowering the probability of a recession beginning in the last several months is the Federal Reserve's interest rate cuts during 2024. The Fed's reductions to the Federal Funds Rate have released some of the building recessionary pressure from the Fed having boosted short term interest rates in 2022 and 2023 to combat the Biden-Harris administration's inflation.
With the Federal Funds Rate being reduced, the yields of short-term U.S. Treasuries have followed, further reducing the recession start probability. The following chart tracking the probability of recession since 30 April 1983, the period from July 2024 through mid-September 2025 represents the most likely period in which the NBER will say the U.S. economy peaked before beginning a period of contraction.
This chart shows the recession probability 'pushed out' to the end of the period for which the recession forecast applies, which gives a "glass half empty" view of the recession probability data.
We've also updated the Recession Probability Track, which provides additional information about the factors that influence Wright's recession forecasting model.
We will continue following 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.
At this writing, the first criteria has been met. The U.S. Treasury yield curve is no longer inverted, as the yield of the 10-year Treasury is now higher than the yield of the 3-month Treasury.
It will take longer for the second criteria to be met. We now anticipate the decline of the recession probability will slow and stall out above the 20% threshold in the weeks ahead in the absence of any additional interest rate cuts by the Fed in the next several months. That will change as we approach the second half of 2025, as the Fed is expected to cut the Federal Funds Rate by a quarter point when it meets in late June.
Analyst's Notes
The recession probability we've presented is based on the Federal Reserve Board'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 provided a tool to make it easy to do.
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 Plunges to 27%
- U.S. Recession Probability Drops Below 50%
- U.S. Recession Odds Fall with Fed Rate Cut, But Are Still Elevated
- Triple Top Pattern Locking In for U.S. Recession Probability
- Triple Top Developing for U.S. Recession Probability
- U.S. Probability of Recession in Next Twelve Months Hovers Near 70%
- Recession Probability Falls After Hitting Double-Top
- U.S. Recession Probability Nears a Double-Top
- Probability of U.S. Recession Resurges to Nearly 75%
- U.S. Recession Odds Recede to Two Out of Three Chance in 2024
- 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: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a banker having their palm read by a fortune teller with the Federal Reserve in the background".