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Chicago Fed Letter

Luca Benzoni, Olena Chyruk, and David Kelley

Many studies document the predictive power of the slope of the Treasury yield curve for forecasting recessions. This work is motivated, for example, by the empirical evidence in figure 1, which shows the term-structure slope, measured by the spread between the yields on ten-year and two-year U.S. Treasury securities, and shading that denotes U.S. recessions (dated by the National Bureau of Economic Research). Note that the yield-curve slope becomes negative before each economic recession since the 1970s. That is, an “inversion” of the yield curve, in which short-maturity interest rates exceed long-maturity rates, is typically associated with a recession in the near future.

Scott A. Brave and David Kelley

We use a model based on the historical relationships between unemployment, inflation, and recessions, along with the Summary of Economic Projections (SEP) from the Federal Open Market Committee (FOMC), to examine the medium-term implications of current and projected unemployment rates for the U.S. economy. Our model predicts a low probability of a recession in the next two to three years based on SEP forecasts for additional labor market tightening over this horizon.

Richard H. Mattoon

On September 17, 2018, over 100 researchers, academics, policymakers, and business people gathered at the Federal Reserve Bank of Chicago to explore strategies and methods for improving state fiscal stability and performance while promoting budgetary transparency. The Chicago Fed cosponsored the program with the Volcker Alliance, the Pew Charitable Trusts, and the Lincoln Institute of Land Policy.

Lamont K. Black, Shruti Khetan, Emmanuel Akwafo, Nathan Halmrast, Christa Harris, and Ana Oppenheimer

The Chicago Fed’s Supervision and Regulation Department and DePaul University’s Center for Financial Services held their 11th annual risk conference on April 4–5, 2018. The conference brought together financial industry professionals, academics, and regulators to discuss the technological and generational transformation of financial services and evolving issues concerning risk management and bank regulation.

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