Their research since the late 1980s reveals that the slope of the yield curve is a reliable predictor of future real economic activity. Specifically, the Fed model uses the difference between 10-year and 3-month Treasury rates to calculate the probability of a recession in the United States twelve months ahead.
You will notice in the chart how closely the Fed model correlates with recessions of the past 4 decades.
The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%.
The Fed model shows a recession probability of only about 1% on average through the next 12 months. The New York Fed's Treasury spread model predicts the end of the recession in 2009.
I find it interesting that the Fed model has accurately predicted the last 7 recessions dating back to 1960.
According to my favorite economist, Brian Wesbury, "Some early warning signals suggest an economic recovery should start taking hold by mid-year."
Recently I published a L U V article about the pattern of this recession. Based on this information, the V outcome predicated by Brian Wesbury is possible.
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