FRBSF Economic Letter: Economic Forecasts with the Yield Curve

Thomas Mertens and I wrote an Economic Letter on predictings recessions with the yield curve. There has been a lot of public discussion about whether a flat yield curve contains a strong signal about a future economic slowdown. We found that the predictive power of the yield curve for future economic activity and recessions is very strong, and remains strong even in the current environment with a low overall level of interest rates, a low term premium, and other somewhat unique circumstances. Read the Letter here.