Even The Fed Is Flashing A Recession Warning

Tyler Durden's picture

After The Cleveland Fed's warning of "significant stress" in the financial markets, we find none other than Dovish-hawk Jim Bullard's St.Louis Fed growing increasingly fearful of the "r" word.

The last two times, financial stress was this "significant," The Fed unleashed QE1 and Operation Twist...



And now, as Mises Institute's Mark Thornton notes, this little known chart (below) is the St. Louis Fed's attempt to anticipate a recession in the US economy.

The latest reading from last November is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.

As you can see by the chart, there were false starts in early 1978 and 1979 prior to the recessions of 1980 and 1981/82. As well as a false start in September of 2005.

We will see if this time is different...

According to the Fed's website (FRED):

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.

Given the broadness of the data used to create this indicator, we can't help but wonder - if the "recession risk" was this high in November, why did The Fed hike rates in December?


Source: FRED

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MFL8240's picture

But they said 2 months ago all was fine time to raise rates?  

venturen's picture

they needed to raise rates so they can drop them. They didn't want to be the first to Negative.

El Oregonian's picture

Nancy Polosi Logic: "We'll have to raise them so we can find out whats in them"...

Boris Alatovkrap's picture

This is why bankster is make big bucks, because always is so on top of thing and never surprise by future event. Veritable masters of untintended consequence.

junction's picture

The whole world is going to hell in a handbasket.  The Fed is like a Kabuki theater, only without the performers wearing painted faces.  No one in government these days is good at doing anything but lying.  Look at Flint, Michigan, where the tap water was brown and no one did anything for two years except write memos or lie or both.  Or look at Marfa, Texas, where Scalia wound up dead in the nearby Cibola Creek hotel, an establishment that adorns its walls with Santeria death masks.  Or look up a story written in by the mother of a daughter murdered in Marfa and the killing covered up. In 2013, the same county judge who botched up the Scalia investigation ruled that a young woman found dead after being hit by a Union Pacific train was a suicide, not a crime victim.  Even though the Union Pacific detective who investigated the death said it was murder, that the victim was dead and then dumped on the rail tracks. Her mother wrote an article about her daughter's death in the Daily Kos. What is strange about this story is that after the mother made complaints about the botched investigation of her daughter's death by Marfa law enforcement, the county DA filed a federal complaint alleging her son, a music teacher, had phoned in a threat to him. On the basis of this complaint, with no recording of the alleged phone call, the FBI arrested and locked up her son. Marfa, a real interesting place.


open-range's picture
open-range (not verified) MFL8240 Feb 20, 2016 6:02 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Feb 20, 2016 4:52 PM

Significant STRESS occurs when GS&The NY Fed are 100% leveraged 'SHORT' the market...


Thanks GOYS!

wildbad's picture

finally they get it too.  what a relief

medium giraffe's picture

A lot of ?? on the charts these days.  It's like some sort of pattern is emerging.

ah-ooog-ah's picture



I like how they can compute this index to 7 significant figures.   I'd be surprised if any of the input variables were known to better than 3.




starman's picture

Went downtown Friday night in sunny socal at 7pm .

Retail stores dead restaurants dead pizza place half full.

Saks 80% off Tillys 40% Macy's 30-70% off!

Pretty sad. Reminds me of 08-09. 

And its just gonna get  worse!




failure to perform's picture

Same problem with the fonts and it keeps loading a new page with likes when I'm on my phone.

Agrre with the retail assessment and restaurants still seem to be having some traffic. But there are nowhere near as many places to eat or merchandise to sell as there was back in 2008.