Probability of Recession: October 2006

The Federal Reserve's Open Market Committee announced yesterday that they would be leaving the Federal Funds Rate unchanged at 5.25%.

Using Political Calculations' recession probability tool, which determines the odds that the U.S. economy will enter into a recession sometime in the next 12 months, we find that the current probability of recession in the U.S. is 43.4%. This figure is based on the current level of the Federal Funds Rate and the yields at market close of the 3-Month Treasury (4.98%) and the 10-Year Treasury (4.76%) on October 25, 2006.

We've also updated our chart that tracks the odds of recession since the Federal Reserve began it's most recent series of rate hikes:

Since the last FOMC meeting, the odds of recession have largely held stable in the lower 40 percents. While the probability of recession has increased slightly since the Fed last left interest rates unchanged, it is still within a narrow range it has been since the Fed set the 5.25% rate in June 2006. The peak occurred in late August as the probability of recession reached slightly over 45%.

In other words, "Move along. Nothing to see here people", which more or less expresses the market's reaction to the Fed's announcement.