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Using the yield spread to forecast recessions and recoveries

The yield spread indicates the likelihood of a recession or recovery one year forward. The spread equals the difference between the short-term borrowing rate set by the Federal Reserve (the Fed) and interest rates on longer term treasury notes, determined by bond market activity. This spread continued to fall in March 2019, averaging 0.17 points, quickly approaching negative territory. This is in-line with a long downward trend that began in 2014. The yield spread is at its lowest point since the 2008 recession as of March 2019. The spread continues to fall, the result of higher short-term interest rates stimulated by the Federal Reserve (the Fed) during 2018, and bond market investors seeing less future growth as the economy slows. While mortgage interest rates have fallen back in 2019, the Fed has kept their benchmark rate even, and investors continue to see less future growth in 2019-2020, causing the narrowing yield spread. This figure is expected to slip to zer

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