Tuesday, September 28, 2010

NY Fed Model: Slim Chance of a Double-Dip in 2011

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through August 2010, and the Fed's recession probability forecast through August 2011 (see top chart above). The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.70% in August) and 3-month Treasury bills (0.16%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (2.54% in August, see bottom chart above).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40% (see chart above), and has been declining since then in almost every month. For August 2010, the recession probability is only 0.08% and by a year from now in August of next year the recession probability is slightly higher, but only 0.61% (about 6/10 of 1%). According to the NY Fed Treasury Spread model, the chances of a double-dip recession through the middle of next year are essentially zero.


At 9/28/2010 10:11 AM, Blogger morganovich said...

how many times do we have to debunk this model?

it has no forward predictive value.

it missed 61, 74, 82, and 00 until they were already underway.

worse, the yield curve is being heavily manipulated though QE and cannot be trusted as an indicator right now even if it did work.

worst, it's a fundamentally flawed model. it implies that there can never be a recession if short term rates are zero.

ask japan about that.

At 9/28/2010 10:17 AM, Blogger morganovich said...


consumer confidence is at a low since feb, regional manufacturing surveys are turning negative (contraction) especially in orders, and GDP is slowing.

depending on what you believe about inflation, we may still be in a recession.

At 9/28/2010 9:21 PM, Blogger juandos said...

I wonder if the New York Federal Reserve took into account this CBO report?

At 9/29/2010 1:10 AM, Blogger Unknown said...

Great model! It predicted five recessions after they already began, and it had several false positives.

The probability of a double dip is 100% now that the NBER has jumped the gun.


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