U.S. Recession Probability Shoots Over 50% On Way To 60%

Recession Sign by Annie Splatt via Unsplash - https://unsplash.com/photos/XJmmH6GajlY

Image credit: Photo by Annie Spratt on Unsplash.

A lot has happened during the last six weeks.

Rising interest rates. The second and third-largest bank failures in U.S. history. Technology industry layoffs.

Before all this happened, six weeks ago, a recession forecasting model developed by a U.S. Federal Reserve analyst predicted the probability of recession in the U.S. would soon rise above 50%. That prediction has since come to pass, as the 50% probability line was breached on Valentine's Day 2022.

Through Friday, 17 March 2022, the same model indicates the probability the National Bureau of Economic Research will someday determine a recession began sometime between March 2023 and March 2024 has risen to nearly 57%.

The latest update to the Recession Probability Track shows how that probability has evolved since our previous update at the end of January 2023.

Recession Probability Track, 20 January 2021 through 17 March 2023

The chart shows the current probability of a recession being officially determined to have begun between 17 March 2023 and 17 March 2024 is 56.9%. Assuming the Fed follows through on hiking the Federal Funds Rate by another 0.25% tomorrow, the probability of an "official" recession will continue rising. Doing some back-of-the-envelope math using our recession odds reckoning tool, with the 10-Year and 3-Month Treasuries as inverted as they are today, the odds of recession should rise to nearly 62% by the end of the Fed's next meeting on 1 May 2023.

Analyst's Notes

The particular recession forecast model we're tracking is really trying to predict what range of months will contain the month the NBER's analysts will one day say the U.S. business cycle hit its peak of expansion following 2020's Coronavirus Pandemic Recession before turning south. That is not the same as forecasting when recessionary conditions affecting the economy began. Those already have. The model attempts to forecast the period in which the NBER's criteria for what they consider qualifies as a national recession will have been met.

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