The odds that the United States will fall into a recession at some point over the next 12 months have risen to a 40-year high, according to a probability model from the New York Federal Reserve.
The probability that the country will enter a recession within the next year has risen to 68.2 percent, according to the New York Fed, which is the highest level since 1982.
The Fed’s recession risk indicator is now greater than it was in November 2007, not long before the subprime crisis, when it stood at 40 percent.
The recession model is based on the spread between the three-month and 10-year yields on U.S. Treasurys.
For months, the U.S. economy had been projected to show slowing real GDP growth and labor market softening.
Amid the banking sector turmoil sparked by the collapse of Silicon Valley Bank, economists at the Federal Reserve have projected a shallow recession.
“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” stated the minutes from a March meeting of the Federal Open Market Committee (FOMC).
There has been a growing chorus of experts who believe that the odds of a recession are high.
Former Treasury Secretary Larry Summers said he thinks the chances are “probably about 70 percent.”
“The chance that a recession will have begun this year in the U.S. over the next 12 months is probably about 70 percent,” Summers said in a recent interview with Foreign Policy.
“As I put together the lags associated with monetary policy, the credit crunch risks, the need for continuing action around inflation, the risk of geopolitical or other shocks affecting commodities, 70 percent would be the range that I would be in.”
By Tom Ozimek
