Saturday, December 10, 2011

New York Federal Reserve Recession Model: Only 1-in-32 Chance of Double-Dip Recession in 2012

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" last week with treasury yield data through November 2011, and the Fed's recession probability forecast through November 2012 (see chart above). The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.01% in November) and 3-month Treasury bills (0.01%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (1.42% in November).

According to the NY Fed's Treasury Spread model (data here) the chances of a double-dip recession through November of next year are 3.6%, or only a one-in-28 chance.


At 12/10/2011 11:00 PM, Blogger W.C. Varones said...

I'll take the over on that.

At 12/11/2011 1:32 AM, Blogger juandos said...

Simple question: does the Fed have any credibility since they're advised by hedge fund traders?

At 12/11/2011 7:55 AM, Anonymous Anonymous said...

This level is pretty close to the "threshold detection" limit for a recession - that is: the horizontal line that you'd draw across this graph if you were making a peak finding algorithm to have the software tell you when you entered a recession.

Doesn't seem very encouraging to me.

-JD Cross

At 12/11/2011 7:59 AM, Blogger W.C. Varones said...

So all it takes to avoid a recession is for the Fed to pin short-term rates at 0% forever.

We've repealed the business cycle! Now somebody give me a Nobel Prize.

At 12/11/2011 8:25 AM, Blogger Larry G said...

what are the things that would push a second recession right now?

At 12/11/2011 9:05 AM, Blogger Ironman said...

Larry G asked:

what are the things that would push a second recession right now?

The aftermath of the various economic stimulus efforts around the world in 2009 and 2010 (especially China's). They succeeded in boosting the world economy for a time, but are proving to be unsustainable and worse, have unintentionally created the conditions that will lead to a full-fledged recession.

More here on how that will play out....

At 12/11/2011 9:39 AM, Blogger PeakTrader said...

Many people don't realize the U.S. economy is in a weak position.

Further U.S. monetary stimulus is constrained by inflation.

Further U.S. fiscal stimulus is constrained by budget deficits.

Obama, rather than moving to the center, like Clinton after the 1994 defeat, not only continues to defend his failed economic policies, he wants more of the same, while stepping-up attacks on the most productive Americans, for "not paying their fair share."

An economic shock, e.g. an E.U. recession, particularly if it turns into a vicious cycle, making the recession much worse, will cause a double-dip U.S. recession, and there won't be much the U.S. can do about it.

Except, hope the GOP wins big in 2012 and does what needs to be done, e.g. deregulating, cutting spending, and cutting taxes, on a large enough scale to jolt the economy into a virtuous cycle of consumption-employment.

At 12/11/2011 11:00 AM, Blogger PeakTrader said...

The inverted yield curve before the 2007 recession supports the fact that U.S. monetary policy was restrictive (the Fed believed the global savings glut contributed to the inverted yield curve and kept the money supply too tight).

Currently, if short-term rates are too low, e.g. zero Fed Funds rate or quantitative easing (because of accelerating inflation), the 10-year yield of only 2% (the lowest since the 1950s) may forecast recession.

Riding the yield curve
December 27, 2005

"The biggest risk in 2006 is that the Fed will be seduced by worries about inflation into raising rates too high," said Hugh Johnson, chairman of Johnson Illington Advisors. "A lot depends on what the 10-year does and while I would hope that they would take notice that it's going down in yield, the question is whether they will take it seriously or dismiss it."

At 12/11/2011 12:13 PM, Blogger cruiser said...

Nassim Taleb would tell us to "beware the black swan". I suspect that the appearance of that avian threat is much more likely in the case of anything tainted by government intervention.

At 12/11/2011 12:14 PM, Blogger cruiser said...

This comment has been removed by the author.

At 12/11/2011 12:28 PM, Blogger VangelV said...

I'll take the over on that.

Me too. The federal government is bankrupt as are the states and municipalities. Pension funds are having massive problems as their supposedly 'safe' holdings are much riskier than once thought. People are out of money and need more credit to maintain their lifestyle. Employment participation is near historical lows and there is a massive overhang of unsold inventory in the housing market. Chinese real estate is down around 30% in many of the formerly 'hot' markets.

Now we can argue that things are so bad that we have to see an improvement, but for that to happen you need liquidation of bad assets. Has anyone seen that liquidation? I know that I have been looking hard and have yet to see any evidence of it.

At 12/12/2011 12:42 AM, Blogger David Gaw said...

Anyone know what odds they gave regarding the likelihood of the last recession?

At 12/12/2011 1:58 AM, Blogger Richard said...


> 1-in-32 Chance of a Double-Dip recession in 2012

If I look at the graph I see that if the prediction crosses the 30% mark we end up in a recession.

The prediction is currently at 3.6%. That would make a 1-in-9 chance to end up in a recession.

At 12/12/2011 3:30 PM, Blogger morganovich said...


that's an excellent point.

if this metric only got to 40% likelihood during the very middle of the worst recession since ww2, it's seems a bit odd to use 100% as a relevant metric.

fr a look at the graph, it does seen like somewhere between 30 and 40% would be where 100% should really be set.

these %'s seem like arbitrary scaling.

At 12/15/2011 4:53 PM, Blogger ChasVoice said...

Suspend habeas corpus and enact martial law?
by Chris Powell – GATA – December 12th, 2011

Americans seem ready to forfeit their most basic civil liberty — actually, all their civil liberties — without a whimper.

By a vote of 93-7 the Senate this month approved a military appropriations bill empowering the government to designate any U.S. citizen within the country as a terrorist and to have the military hold him indefinitely without trial and without the right to habeas corpus, the right to be brought before a court for a judgment on the legality of one’s imprisonment....

At 12/15/2011 4:54 PM, Blogger ChasVoice said...

Outstanding Video - The Nazi Banksters' Crimes - Ripple Effect


Post a Comment

<< Home