US Recession Probability Reaches 96 Percent Heading Into Q4

The Federal Reserve’s monetary policy and financial conditions are playing important roles in the elevated US recession probability in 2022. The probability is estimated using several leading indicators including: 1) the yield spread; 2) financial conditions; and 3) the Federal Reserve’s balance sheet. 

The variables used in this model are particularly informative about the future state of the economy, because they are timely and reflect financial markets’ assessments of future economic conditions.