The slope of the yield curve, measured as the ten-year Treasury yield minus the three-month bill yield. Long loans normally pay more than short ones, so the number is usually positive. When it turns negative the curve is inverted: short rates are above long rates, which means markets expect the Fed to cut. An inversion sustained for a quarter preceded every US recession from 1969 to 2020 with a lead of six to eighteen months; the series shown starts in 1982.

Threshold source: Estrella and Mishkin (1996), Federal Reserve Bank of New York. How thresholds are chosen

The lead is long and variable. The warning is the dip below zero, not the climb out of it: once the economy weakens the Fed cuts short rates fast, the spread rebounds, and the recession usually starts during that rebound, which is why the shaded bands sit on the rising legs of the chart. The state here therefore turns to Post-trigger rather than Normal when the curve un-inverts. The inversion of October 2022 to December 2024, the longest on record, had not been followed by a recession as of September 2026.