WEALTH STRATEGIES
FEDERAL RESERVE STUDIES
December 21, 2006

The Yield Curve's Predictive Power by
Joseph G. Haubrich and Brent Meyer

http://www.clevelandfed.org/research/trends/2007/0107/01monfin_122106.cfm

The slope of the yield curve has achieved some notoriety as a simple forecaster of economic growth.

10-Year 3-Month Yield Spread versus Predicted GDP Growth

10-Yr 3-Month Yield Spread versus Predicted GDP Growth

Sources: Department of Commerce, Bureau of Economic Analysis; Board of Governors of the Federal Reserve System.

Probability of Recession Based on the Yield Spread*

Probability of Recession Based on the Yield Spread

*Estimated using probit model.
Sources: Department of Commerce, Bureau of Economic Analysis;

Board of Governors of the Federal Reserve System.

For more detail on these and other issues related to using the yield curve to predict recessions, see the Commentary:
"
Does the Yield Curve Signal Recession?"


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