It might not feel like it, but chances are low that the US will suffer another recession anytime soon. A measure known as the excess bond premium (EBP), which uses data from credit spreads to predict the likelihood of a recession over the next 12 months, has dropped to a three-year low.
In past recessions, the EBP spiked and remained elevated for some time, as our chart shows. While last year’s COVID-triggered downturn was the deepest since the 1930s, it was also short-lived – thanks to fiscal stimulus and the Federal Reserve’s expansionary monetary policy. And this was borne out in the latest data released last week by the Bureau of Economic Analysis, which reported 1% growth in the fourth quarter.