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

by: Mark J. Perry

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.

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