Promises are only binding on those who believe them. By extension, the same could be said of forecasts (complete the list: stock market, weather, economic, wage, etc.). We were no exception to the rule, as we also reported in these columns on the risks of recession hanging over the US economy, notably due to the inversion of the curve. As a reminder, an inversion occurs when short rates (3-month and/or 2-year) are higher than long rates (10-year). This rare phenomenon is usually the result of a drastic interest rate hike by the US Federal Reserve (see chart below).

Source: Bloomberg

Interestingly, a recession typically follows an inversion. The greater the depth of the inversion, the greater the likelihood of this happening (see below). With a low point of -1.85 reached in May 2023, the probability is 80%.

Source: Rosenberg Research

The million-dollar question, however, is: how long is the interval between inversion and recession?

Based on the last 14 rate hike campaigns, 78.6% were followed by a recession within 11 to 42 months, with an average of 26 months. With this tightening cycle having started in March 2022, the recession is expected to begin between now (May 2024) and September 2025. As usual, we'll wait quietly for signs of a turnaround in the equity market to confirm such a scenario.