We found an even more reliable recession indicator that we discussed in a report that we published in 2017. Specifically, in every cycle going back to the mid-1950s, recession has followed by 17 months, on average, after the fed funds rate crosses the low of the 10-year Treasury yield during the previous cycle. The FOMC cut its target range for the fed funds rate to 0.00% to 0.25% in March 2020 and maintained it there until March 2022. The effective fed funds rate breached 0.50% in May of this year when the FOMC hiked its target range for the federal funds rate to 0.50% to 0.75%. If our indicator remains a reliable signal of an impending downturn, then recession likely will occur by October 2023. Indeed, as we wrote in a recent report, we currently forecast that the U.S. economy will slip into a modest recession beginning in mid-2023.
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