A0391
Title: Monetary policy, inflation outlook, and recession probabilities
Authors: Andrea Ajello - Board of Governors of the Federal Reserve System (United States)
Luca Benzoni - Federal Reserve Bank of Chicago (United States) [presenting]
Makena Schwinn - Federal Reserve Board of Governors (United States)
Yannick Timmer - Federal Reserve Board of Governors (United States)
Francisco Vazquez-Grande - Federal Reserve Board (United States)
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. Aggressive removal of policy accommodation increases the recession probability to 60\%.