Recession Indicator

The Recession Indicator looks for the classic leading combination of a US recession: the yield curve turns back from inversion into positive territory, and the smoothed policy rate starts to fall. If both events occur almost at the same time, the study shades the following twelve months on the price in red.

How to read it

• An inverted yield curve has historically preceded almost every US recession. It often only became dangerous when the curve normalized again, because the Fed was cutting short-term rates as the economy was already weakening. This is exactly the combination the study looks for.
• A signal is a warning for the following twelve months, not a date. Risk assets often fell significantly in such phases, but not always right away.
• Since the 1950s, the rule has triggered only a handful of times. That makes each signal significant, but the statistics behind it are thin.

Good to know

• The current month counts with its latest value so far. A signal in the current month can therefore disappear again by the end of the month.
• The shading needs a candle at the end of the twelve months. So a signal from the last twelve months does not appear on the chart yet.
• The study marks signals, not actual recessions. mantacharts: FEDFUNDS shades the officially dated US recessions.
• No settings apart from the style. Intended for 1D to 1W, the preset is 1W.

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• US Bond Market Stress Tracker