The New York Federal Reserve’ recession indicator – which is used to predict the probability of a recession one year from now – fell 1.67 percentage points from May in June. The recession probability is derived from the yield curve – or the difference between rates on 10-year Treasury bonds and 3-month Treasury bills – which increased 0.36 percentage points from the month prior. This increase is the result of a 0.37 point increase in the average rate of Treasuries and a 0.01 point increase in the rates of T-bills. Yields on 10-year Treasuries rose in the second half of the month after Ben Bernanke, chairman of the Fed, announced that the Federal Open Market Committee (FOMC) had decided that quantitative easing – or the U.S. central bank’s bond-buying program – would begin to wind down within the second half of the year, given continued signs of a strong economy. Yields on ten-year Treasuries increased with this news, as investors responded to the expected decline in future demand for these securities. On the other hand, the Fed Funds rate is expected to remain at a target of 0 to 0.25 until unemployment falls below 6.5% and inflation is no higher than 2.5% within one or two years, projected by some to occur around 2015; hence there was little change in the yields on three-month T-Bills.
NY Federal Reserve’s Recession Indicator 2013-06-01 to 2013-06-30
Saturday, June 1, 2013
Sunday, June 30, 2013