Predicting Recessions in the United States With the Yield Curve

This is a preview from the National Institute Economic Review, May 2018, no 244.

This Box, prepared by NIESR Senior Economist Cyrille Lenoel, reviews the literature on the predictive power of the yield curve, with a particular focus on the United States, and compute the current implied probability of a US recession using data ranging from 1953 to 2018.

"Using the yield curve to predict upcoming recessions is an easy and model-free way of extracting some of the information contained in the government bond market to forecast an event that is otherwise very difficult to predict. Our own research and that of the New York Fed and the San Francisco Fed3 suggest that the possibility of a recession in the US has risen somewhat over the past year but it is still far from our central case outlook".