The probability a U.S. recession will someday be determined to have begun between December 2024 and December 2025 has dropped below 50%.This assessment is based on the yield curve-based recession forecasting model developed by Jonathan Wright in 2006. Going by this model, the odds of a U.S. recession in the next year dropped below the 50% threshold on 1 December 2024.The main factor lowering the probability of a recession beginning in this period is the Federal Reserve’s interest rate rates during 2024. The Fed’s reductions to the Federal Funds Rate has released some of the building recessionary pressure from the Fed having boosted short term interest rates in 2022 and 2023 to combat the Biden-Harris administration’s inflation.With the Federal Funds Rate being reduced, the yields of short-term U.S. Treasuries have followed, further reducing the recession start probability. The following chart tracking the probability of recession since 30 April 1983, the period from July 2024 through mid-September 2025 represents the most likely period in which the NBER will say the U.S. economy peaked before beginning a period of contraction.chartThe current probability of a recession being officially determined to have begun between 1 November 2024 and 16 December 2025 is 42.9%. The featured chart shows that probability ‘pushed out’ to the end of the period for which the recession forecast applies.And now that the Federal Funds Rate is not being held at a fixed level for a sustained period of time, we can resume updating the Recession Probability Track, which provides additional information about the factors that influence Wright’s recession forecasting model.Recession Probability TrackWith the Fed set to reduce the Federal Funds Rate by another quarter point on 18 December 2024, we anticipate the Recession Probability Track will continue its downward trajectory in the weeks ahead.Analyst’s NotesAs mentioned, the recession probability presented here is based on the Federal Reserve Board’s yield curve-based recession forecasting model, which factors in the one-quarter average spread between the 10-year and 3-month constant maturity U.S. Treasuries and the corresponding one-quarter average level of the Federal Funds Rate. If you’d like to do that math using the latest data available to anticipate where the Recession Probability Track is heading, we have provided a tool to make it easy to do.We will continue following the Federal Reserve’s Open Market Committee’s meeting schedule in providing updates for the Recession Probability Track until the U.S. Treasury yield curve is no longer inverted and the future recession odds retreat below a 20% threshold. We’re following how this forecasting method performs and we anticipate this level may be reached in mid-2025.More By This Author:S&P 500 Retreats As Expected Rate Cuts In 2025 Drops To Two
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