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 rates 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.

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