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J.P.Morgan on Thursday raised its predicted odds of a U.S. recession before the end of the year to 35 percent from 25 percent. Going off of the yield spread, the relationship between the interest rates of short-term and long-term U.S. government bonds, a U.S. recession in the next 12 months was considered 56 percent likely as of July as seen in data published by the Federal Reserve Bank of New York. As more buyers become interested in long-term investments, the yields of these usually fall. If they decrease below the interest rates of short-term investments, the yield curve is considered inverted, i.e. abnormal, signalling a strong fear and likeliness of negative short-term developments in the economy. This has happened before all NBER-defined U.S. recessions since 1955, even though it is considered incidental before the most recent Covid downturn that came more unexpected as the result of external factors. The curve had one misfire in 1966, when no recession occurred. Additionally, the Sahm Rule indicator is also signalling bad news as of the latest employment report. It says that the U.S. economy is entering a recession if the unemployment rate’s three-month moving average exceeds the lowest three-month moving average of the past year by half a percentage point or more. The indicator stands 0.53 p.p. higher as of July.

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