NY Fed Model Suggests Economic Recovery Has Started, and Recession Will End This Year
According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."
The New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through April 2009, and the Fed's recession probability forecast through April 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (currently at 2.77%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread).
Bottom Line: My reading of the New York Fed's Treasury spread model suggests that an economic recovery is probably already underway, and the Fed's model predicts the end of the recession in 2009.