Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/267986 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. WP 2022-31
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
Why does the short-term slope of the yield curve predict recessions? We explore the economic forces underlying Treasury yields' fluctuations and highlight the roles of a tight monetary policy stance and expectations of lower inflation in predicting downturns. While the monetary policy stance is still accommodative, indicating a low recession probability, the negative inflation slope points to higher odds of a recession within a year. An aggressive removal of policy accommodation increases the recession probability to 60%.
Subjects: 
yield-curve slope
recession forecasts
monetary policy
bond risk premia
policy path
inflation forecasts
near-term forward spread
JEL: 
G10
G12
E32
E37
E44
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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