Recession Probabilies

The following table is based on Estrella and Mishkin's 1996 paper, which attempts to predict the probability of recession four quarters in the future (we've written about this before):

Table of recession probabilites

John Mauldin puts it this way in his latest newsletter:

There is today a negative spread of 2 basis points, as opposed to a positive 50 basis points less than two months ago.

It is all but a foregone conclusion that the Fed will raise rates at its March meeting. If the ten year stays where it is, we will see a negative 27 basis point spread in the middle of March, which within 90 days would suggest a mid-30% chance of recession.

If the Fed raises again in May to 5%, without the ten year moving up, we would see a 40% chance of recession as the 90 day average would soon be a negative 50 basis points.