After pausing for nine months, the U.S. Federal Reserve resumed cutting interest rates on 17 September 2025. The Fed reduced the Federal Funds Rate by a quarter percent to a target range of 4.00-4.25%.

As expected, this action reduced the probability a recession will begin in the next twelve months. The recession forecasting method we've used to monitor the odds of recession starting in the U.S. indicates the recession probability has dipped from 26.5% six weeks ago to 23.7% as the Fed appears set to reduce U.S. interest rates further.

We anticipate that action will continue pushing the odds of a U.S. recession starting in the next twelve months down slowly because of the expected small size of its imminent rate cut. We project that in the next six weeks, the probability of a U.S. recession getting started in the next twelve months will be around 21%.

Then, assuming the Fed acts again in six weeks to cut U.S. interest rates by another quarter point, as is currently expected by the CME Group's FedWatch Tool, we should see the recession probability drop below the key 20% threshold in early 2026.

The following update to the Recession Probability Track shows how the probability of recession has evolved from 20 January 2021 through 15 September 2025 in the context of how the difference between the yields of the 10-year and 3-month U.S. Treasuries combined with the level of the Federal Funds Rate have changed over this time.

A 20% probability represents the "background" probability of recession for the U.S. economy. By this, we mean that if you packed a bag a marbles identified with every month and year the United States has been an independent nation and picked one at random, you would have a 20% chance of picking a marble with a date the U.S. economy was in recession. We plan to end this series after the probability of recession drops below this probability threshold.

However, that doesn't mean the U.S. economy is not experiencing recessionary conditions today, for which there are some indications of distress:

It often seems that economists are perpetually warning us about the next U.S. recession. One influential analyst says an economic slowdown is already a fact of life for many Americans.

Twenty-two states are “now experiencing persistent economic weakness and job losses that are likely to continue," said Mark Zandi, the chief economist at Moody’s Analytics, to MarketWatch. The overall American economy is “on the precipice. Government data released before the shutdown showed the “broader economy was in pretty good shape,” said MarketWatch, but some are skeptical. The gross domestic product might be rising, said Zandi, but the “job market is weaker.”

Other observers are warning of a bifurcated “K-shaped economy,” said CNBC. Wealthy Americans are “engaging their purchasing power,” but lower- and middle-class consumers are struggling with “rising costs on daily essentials like groceries and gas.” Meanwhile, “unofficial signals” like rises in missed car payments and women leaving the workforce are offering “early warning signs about what is to come,” said Quartz.

These conditions haven't developed in a vacuum. The onset of these conditions have coincided with elevated probabilities of recession that the recession forecasting model we track was projecting more than a year ago. Here's a short summary of when the model anticipated those conditions could develop into a higher likelihood of recession.

50% Probability of Recession

• 13 February 2023 through 29 November 2025

60% Probability of Recession

• 25 April 2023 through 29 October 2025

70% Probability of Recession

• 25 May 2023 through 8 October 2024
• 31 January 2024 through 29 March 2025
• 5 September 2024 through 20 September 2025

These are the periods the recession forecasting method predicts the National Bureau of Economic Research will someday identify as containing the month in which a period of economic contraction began. Note that we're still within the periods to which several of these heightened probabilities apply, which we've indicated with red boldface font.

The three sets of dates that apply for a 70% or greater probability of recession relate to a "triple-top" series of peaks the model has recorded since mid-2023.

The end of the first period at this greatly elevated recession probability coincides with when the U.S. Federal Reserve initiated a new series of interest rate cuts that took place between September and December 2024 to forestall a recession from starting in the U.S. during the 2024 election season.

The first two periods coincide with a period of anemic job growth in the U.S. economy, which is confirmed by Bureau of Labor Statistics data that has undergone two massive downward revisions in the last 13 months.

The third period coincides with the timing for when the Federal Reserve resumed cutting U.S. interest rates to address a slowing economy in September 2025.

The most important thing to take away from this retrospective analysis is that the recession model's forecasts for these elevated recession probabilities were set more than a year ago. Today's economic weakness has been baked in for a very long time.

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.

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 Falls After Fed Resumes Rate Cuts, Set to Fall Further
• U.S. Recession Probability as Fed Finally Set to Resume Rate Cuts
• U.S. Recession Odds Holding Mostly Steady with Fed Holding Off on Rate Cuts
• U.S. GDP Contracts as Recession Odds Tick Up with Fed on Hold
• Decline in U.S. Recession Odds Stalls with Pause in Fed Rate Cuts
• 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 Federal Reserve officials meeting with a carnival fortune teller as they decide how to change interest rates".