Danger Zone: Fed's Economic Recession Alarm Goes Off

The Federal Reserve's preferred bond market signal of an upcoming recession has plunged to fresh lows, bolstering the case for those who believe the central bank will soon need to cut rates in order to revive economic activity. Research from the Fed has argued that the "near-term forward spread" comparing the forward rate on Treasury bills 18 months from now with the current yield on a three-month Treasury bill was the most reliable bond market signal of an imminent economic contraction.

That spread, which has been in negative territory since November, plunged to new lows this week, standing at nearly minus 170 basis points on Thursday.

Fed Chair Jerome Powell said last year that the 18-month U.S. Treasury yield curve was the most reliable warning of an upcoming recession.