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The U.S. yield curve does not signal a recession anytime soon

The term structure has long been regarded as one of the most reliable signals of an upcoming economic recession. More specifically, economists and financial analysts have monitored the slope of the yield curve in order to assess the probability of an economic downturn, as the curve inverted ahead of each of the last seven U.S. recessions, and had a single false signal in the past 50 years. More specifically, since the late 60s every U.S. recession has been led by, on average, eleven months during which the term spread was negative.
The prevailing macroeconomic backdrop of expanding economic growth favors a gradual acceleration of the Federal Reserve’s policy normalization, i.e. more aggressive tightening cycle. As a consequence, numerous analysts expect that the term spread will flatten even further, and could, potentially, turn negative.

Given the term spread’s track record, such a development might signal a rising probability of an upcoming recession. The analysis will address the likelihood of an upcoming recession, using the term spread as the primary predictive variable