Tuesday, April 05, 2011

NY Fed Model: 1-in-232 Chance of 2012 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through March 2011, and the Fed's recession probability forecast through March 2012. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.41% in March) and 3-month Treasury bills (0.10%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For March 2011, the recession probability is only 0.26% and for March of next year the recession probability is slightly higher at 0.43%. According to the NY Fed Treasury Spread model, the chances of a double-dip recession through March of next year is less than one-in-200.


At 4/06/2011 2:01 AM, Blogger PeakTrader said...

The recession probability may be low. Nonetheless, U.S. living standards will likely decline through higher prices, interest rates, and taxes (and fees, fines, fares, tolls, etc), and lower benefits (e.g. Social Security).

The middle class, e.g. the 70% who earn $30,000 to $150,000 a year, will suffer the most, because the rich will find ways to minimize taxes and the poor will receive benefits for little or no work.

At 4/06/2011 7:53 AM, Blogger morganovich said...

this model, which has questionable forward predictive value in the best of times (look at 76, 82, 00), is totally meaningless if the fed is manipulating treasury prices.

there is no organic spread signal from the bond markets at all right now.

At 4/06/2011 11:18 AM, Blogger Benjamin Cole said...

The only double dip we will see is on an ice-cream cone--if Bernanke can stay the course.

Show nerves of steel Berbnanke, show nerves of steel. Don't let up on the gas pedal.

At 4/06/2011 11:42 AM, Blogger morganovich said...

This comment has been removed by the author.

At 4/06/2011 11:43 AM, Blogger morganovich said...

using any kind of realistic inflation metric, real GDP growth will be negative in q1.

sorry bubble baby benji, but the double dip is already here. the BLS is just trying to define it out of existence. all we got from this stimulus was inflation, not real growth.

and funny you should mention ice cream given that US restaurants are already experiencing 70's style stagflation even if you use CPI as a delaftor...

At 4/06/2011 12:23 PM, Blogger Benjamin Cole said...


When the Dow rallied from 7k to 12k, were you also so bearish?

At 4/06/2011 2:37 PM, Blogger morganovich said...


you are confusing 2 ideas. the market can run like a cat on fire without the economy growing in real terms if you pump enough loose money into it. as ever, you seem unable to separate these 2 ideas in your mind.

but why ask me? you know my fund. go look it up on hedgefund.net.

you'll see that we lost no money in 2008 and have been making a killing since. (up 111% from 1/2009-now, and that's net of our 20% profit share meaning it's more like 140% gross)

you are picking a fight with the wrong guy if you are going to talk about picking stocks/timing markets.

how has your portfolio been doing?

At 4/07/2011 2:00 PM, Blogger VangelV said...

The Fed could not see an equity bubble or a housing bubble even though they were both obvious. Why should we believe or care what it forecasts now? Haven't people learned that the fools at the Fed are not as smart or honest as they had thought them to be?

At 4/07/2011 2:02 PM, Blogger VangelV said...

Show nerves of steel Berbnanke, show nerves of steel. Don't let up on the gas pedal.

This is coming from the fool who says that he thinks that gold is overvalued and going down. If Bernanke does what you want he will make many much richer. But I doubt that you will be one of them.


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