Professor Sinclair’s slides are here. She addresses three questions:
- Are we in a recession now?
- When is the next recession coming?
- What will the next recession look like?
On point 3, Sinclair notes that the next recession, whenever it comes (and we’re unlikely to see its onset) is potentially going to be a self-inflicted wound:
Dr. Chad Stone discussed how the onset of recessions — and hence the time for action — is typically signalled by a rise in the unemployment rate (as shown in the CBPP post-Great Recession chartbook).
In anticipation of the recession, however, it makes sense to put into place automatic stabilizers, as proposed by the Hamilton Project in their recent paper. That’s in part because it’s unlikely discretionary fiscal policy can be implemented with sufficient rapidity if the recession is of short to moderate duration.
Unfortunately, the policy thrust of the current administration is exactly in the opposite direction — for instance cutting, rather than enhancing, SNAP.
Here’s my assessment of the likelihood of recession, based on the yield curve:
Figure 1: Treasury 10yr-3mo spread (blue), and 10yr-3mo spread adjusted by estimated term premium (red), in percentage points. NBER defined recession dates shaded gray. Source: Fed via FRED, SF Fed, NBER, and author’s calculations.
Figure 2: Probability of recession from probit model using Treasury 10yr-3mo spread (blue), and 10yr-3mo spread adjusted by estimated term premium (red). NBER defined recession dates shaded gray. Source: Fed via FRED, SF Fed, NBER, and author’s calculations.