The New York Fed recently released its latest “Probability of U.S. Recession Predicted by Treasury Spread,” with data through October 2009, and the Fed’s recession probability forecast through October 2010 (see top chart above). The NY Fed’s model uses the spread between 10-year and 3-month Treasury rates (3.32% spread in October) to calculate the probability of a recession in the U.S. twelve months ahead.
The Fed’s model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For October 2009, the recession probability is only 0.18% (less than 1/5 of 1%) and by a year from now in October 2010 the recession probability is only .105%, or about 1/10 of one percent.
Further, the Treasury spread has been above 3% for the last six months (since May), a pattern consistent with the economic recoveries following the last two recessions (see bottom chart above). Finally, the pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession.
According to the NY Fed model, the chances of a double-dip recession this year or next year? Zero.
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