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U.S. Recession Probability as Fed Finally Set to Resume Rate Cuts

Tuesday, September 16, 2025 6:09
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An editorial cartoon of Federal Reserve officials asking a Ouija board whether to cut interest rates where the pointer is on the word 'Yes'. Image generated with Microsoft Copilot Designer.

At long last, the Federal Reserve is on the verge of resuming rate cuts.

The Federal Reserve last cut the Federal Funds Rate to its current target level of 4.25-4.50% in December 2024. When it did, it lowered the probability of recession predicted by the recession forecasting method we’ve been tracking to its lowest level since early 2023.

But it never dropped below the 20% threshold. Currently, the recession probability method developed by Jonathan Wright while working for the Federal Reserve Board back in 2006 indicates the U.S. economy has a 26.5% chance the National Bureau of Economic Research will someday determine a period of economic contraction began sometime within the 12 months from 15 September 2025 through 15 September 2026.

The following update to the Recession Probability Track shows how the probability of recession has evolved from 20 January 2021 through 15 September 2025 in the context of how the difference between the yields of the 10-year and 3-month U.S. Treasuries combined with the level of the Federal Funds Rate have changed over this time.

Recession Probability, 20 January 2021 through 15 September 2025

Because Wright’s recession forecasting method is forward-looking, here’s a guide for interpreting what it has communicated about the periods in which the probability of recession has been elevated. The following chart presents the recession probability the recession forecasting model has projected aligned with the end of the period to which the forecast applies, covering the forecast periods from 30 April 1983 through 15 September 2026, which covers the historical data from which it was developed.

Recession Probability, 30 April 1983 through 15 September 2026

Here is a summary the full effective ranges of dates that apply for several key thresholds of elevated probabilities of recession that the model has projected. Note that we’re still within the periods to which several of these heightened probabilities apply, which we’ve indicated with red boldface font.

50% Probability of Recession

  • 13 February 2023 through 29 November 2025

60% Probability of Recession

  • 25 April 2023 through 29 October 2025

70% Probability of Recession

  • 25 May 2023 through 8 October 2024
  • 31 January 2024 through 29 March 2025
  • 5 September 2024 through 20 September 2025

The three sets of dates that apply for a 70% or greater probability of recession relate to the “triple-top” series of peaks the model recorded since mid-2023.

The end of the first period at this greatly elevated recession probability coincides with when the U.S. Federal Reserve initiated a new series of interest rate cuts that took place between September and December 2024 to forestall a recession from starting in the U.S. during the 2024 election season.

The first two periods coincide with a period of anemic job growth in the U.S. economy, which is confirmed by Bureau of Labor Statistics data that has undergone two massive downward revisions in the last 13 months.

The third period coincides with this week’s timing for when the Federal Reserve is expected to resume cutting U.S. interest rates to address a slowing economy.

The most important thing to take away from this retrospective analysis is that Wright’s recession model’s forecasts for these elevated recession probabilities that apply today were set more than a year ago. Today’s economic weakness has been baked in for a long, long time.

Looking forward, we anticipate the Fed’s expected action to cut interest rates will finally cause the probability of recession to resume dropping to lower levels. We will continue following the Federal Reserve’s Open Market Committee’s meeting schedule in providing updates for the Recession Probability Track until the U.S. Treasury yield curve is no longer inverted, which has already happened, and the future recession odds retreat below a 20% threshold, which is yet to come. We think this second event may occur in the next six to twelve weeks.

Analyst’s Notes

The recession probability we’ve presented is based on the Federal Reserve Board’s yield curve-based recession forecasting model, which factors in the one-quarter average spread between the 10-year and 3-month constant maturity U.S. Treasuries and the corresponding one-quarter average level of the Federal Funds Rate. If you’d like to do that math using the latest data available to anticipate where the Recession Probability Track is heading, we have provided a tool to make it easy to do.

For the latest updates of the U.S. Recession Probability Track, follow this link!

Previously on Political Calculations

We started this new recession watch series on 18 October 2022, coinciding with the inversion of the 10-Year and 3-Month constant maturity U.S. Treasuries. Here are all the posts-to-date on that topic in reverse chronological order, including this one….

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