Despite the lack of coincident indicators suggesting a recession\u2019s onset (we\u2019ll see more on Friday), there are plenty of articles now suggesting an imminent recession:\u00a0 \u201cWall Street Banks Say Markets Are Flashing Rising Recession Risk\u201d<\/a>, \u201cThe Recession Trade Is Back on Wall Street\u201d<\/a>,\u00a0 \u201cWhisper it and it\u2019s back: Recession risk creeps onto markets\u2019 radar\u201d<\/a>, \u201c2025 Recession Risk Is Increasing According To Multiple Indicators\u201d<\/a>. Kalshi\u2019s recession probability for 2025 is now at 42%, after languishing at around 22% for a month. Assuming no recession as of February, what does a conventional term spread (10yr-3mo) model for 12 months ahead indicate?<\/p>\n Figure 1:<\/strong> Probability of recession 12 months ahead estimated 1986M01-2025M02 using 10yr-3mo term spread (blue), using 10yr-3mo spread, private nonfinancial debt-service ratio, and foreign term spread (tan). NBER defined peak to trough recession dates shaded gray. Source: NBER and author\u2019s calculations.<\/em><\/p>\n As of March, the probability of recession using the spreads last March is 44%.<\/p>\n A model incorporating debt-service ratio as well as the term spread as in Ferrara and Chinn (2024)<\/a> and \u2014 for the foreign term spread \u2014 Ahmed and Chinn (2024)<\/a>, better predicts the recessions since 1990 (excepting the 2020 recession). This specification indicates 35% probability in March, 38% in August.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n<\/p><\/div>\n <\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/03\/probrec_feb25.png\")
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