Using data through March.
Figure 1: Recession probability 1 month ahead (blue). NBER defined peak-to-trough recession dates shaded gray. Assumes no recession in March. Source: Author’s calculations.
Pseudo R2 from probit regression of recession on y/y change in Michigan sentiment and 1yr-FFR spread estimated 1986 through 2025M03 is 0.38.
Cautionary note: One false positive in 2022M07.
Trump administration people are urging calm for the markets. Saying we need to be patient, because everything will be ok. What they dont say is that they recently moved into treasuries before this disaster was thrust upon us. They are making money off of your misery. Just check out mtg latest financial moves for evidence. The corruption and stench is overwhelming.
But…but…but…blind trusts, right?
Elon? No? Oh, I forgot. You doactually work for the government.
Lutnick? “Howard will comply with all of the Senate Ethics Committee standards, including divesting his holdings within 90 days of Senate confirmation.”
https://www.fi-desk.com/bgc-claims-record-q4-as-leadership-transition-takes-effect/
So not yet. Well, soon, anyhow.
Scott? “In his ethical commitment, Bessent specified that he would divest these assets within 90 days following his confirmation, in accordance with government ethics rules.”
Getting around to it.
But if divestiture started with equities and other risky assets, not Treasuries just yet, then…Oh…
The NYT has done some initial reporting on market insiders’ reactions to the sharp drop in stocks in response to the felon-in-chief’s tariffs:
https://www.nytimes.com/2025/04/06/business/stock-market-plunge-investment-bank-impact.html
As you can see, the report is light on actual numbers, light on market intricacies. That is as it must be. Market contacts mostly don’t have numbers yet, and are too busy for a long sit-down with reporters. Not bad for an initial reaction.
Here, the NYT pretends to know whether the Fed will come to the rescue:
https://www.nytimes.com/2025/04/05/business/tariffs-stock-market-fed-inflation.html
Jeff Sommer’s job is to explain market behavior, or maybe to pretend to explain, but the premise here is pretty dishonest; Sommers simply doesn’t know how the Fed will respond.
That said, the fear that government in general won’t rescue markets as it has in the past does make sense. One part of government caused the market shock, while another part of government is ham-handedly cutting of payments to any number of government functions without much apparent thought. Scott Bessent isn’t Bob Rubin nor Janet Yellen. Administration officials, instead of telling us they are “closely monitoring” the effects of their own mistakes, are telling us we’re going to have to adjust. Meanwhile, Congress is deciding how to hurry up and inflate the deficit.
In early trade in Asia, Usd/Jpy is down about 1%.
Hi, fwiw, I think you might get a better fit if you used the Michigan survey series of consumer unemployment expectations – it would miss the Covid recession but no material false signals from 1960s onwards, thks
Ps great blog!