This is a very interesting chart of two market-based recession models. The NY Fed probability of recession model is based on the inversion of the yield curve. Inverted yield curves have generally been a good recession indicator for most of the post-WWII period. It currently has been in the longest period of inversion without a recession. This market-based model seems to be failing and providing a false signal; however, right now it is indicating a greater than 50% chance of recession. Oh well, it may eventually be right.
The Fed excess bond premium recession indicator focused on the credit spreads in the bond market and suggests that there is a low probability of recession. Credit spreads have tightened over the last year. No recession expectations in the credit markets.
Which one should you believe? There is a clear signal if both are moving in the same direction. There is no signal if they are moving in the opposite direction. What next?
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