The NY Fed’s yield curve model forecasts a 68% recession probability. Since 1960, a yield curve inversion (as measured by the difference between 10-year and 3-month Treasury rates) has preceded every recession on record.
Commentary
- The NY Fed’s model uses the slope of the yield curve (term spread) to calculate the probability of a recession in the U.S. 12 months ahead.
- The difference between long-term & short-term interest rates (“the slope of the yield curve” or “the term spread”) has borne a consistent negative relationship with subsequent real economic activity in the U.S., with a lead time of about 4-6 quarters according to the NY Fed.
Source: The Yield Curve as a Leading Indicator – FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)
