Recession Likelihood Has Plummeted; Even Higher Interest Rates Coming

The continued strength of macroeconomic conditions is extraordinary. Real Gross Domestic Product (GDP) grew during 2022Q2 at a 2.4% annualized rate, according to the advance estimate from the Bureau of Economic Analysis, and the early prediction from the Atlanta Fed’s GDPNow tool is for even stronger growth during 2022Q3 at 3.9%.

As a result, the likelihood of a recession has plummeted. Using data through April, my forecast model put the probability of a recession starting next spring at 73%. However, updating the model using data through June (that is, the latest data available by the end of July) brings the probability down to just 15%.