The New York Fed’s Recession Probability model indicates that a “Powell recession” in 2023 is a certainty, according to the research firm DataTrek.
The model measures the difference between yields on the 3-month and 10-year Treasury – similar to the 2-10 Treasury curve, which is a famous indicator of a recession when the curve is inverted.
Analysts have called the 3-10 Treasury curve a “more accurate” predictor, and Federal Reserve Chairman Jerome Powell has previously called it his preferred recession warning.
It’s now signaling a 38% probability of a recession, according to the NY Fed, but the indicator is really sounding alarms for a near-100% chance of a recession, given how reliable it is, DataTrek co-founder Nicholas Colas said in a note on Wednesday.
“It is clearly saying high short term interest rates are going to cause a recession in the next 12 months. Moreover, these odds are very likely to increase,” Colas said, referring to the expected 50-basis-point hike at next week’s Federal Open Markets Committee meeting.
