US: Recession talk is on the rise – Westpac

Sandeep Kanihama FXStreet Contributor

According to Richard Franulovich, head of FX strategy at Westpac, the inversion of the 3m-10yr US yield curve late last week has understandably put US recession risk back in the spotlight given its enviable track record as a predictor of US recessions.

Key Quotes

“The yield curve based model accurately predicted all five US recessions that occurred in-sample between 1970-1996 (i.e. the estimated probability of a recession exceeded 50%) and accurately predicted the two recessions that occurred out of sample in 2001 and 2008-2009 too.”

“This same model currently estimates the probability of a US recession at a relatively high 20% over the next twelve months. But, if the curve remains inverted for another two months the probability rises to just over 40%; a very elevated reading.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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