The Job Market Says We're Cooked. The Fed's Model Says We're Fine.

So the Federal Reserve has this recession probability model, right? It's supposed to tell us how likely we are to hit a recession in the next 12 months.

And it just did something it's only done a handful of times in history.

The weird part? It's basically saying "all clear, smooth sailing ahead"...

While the job market is literally falling apart.

Let's look at what's actually happening with jobs:

Even Jerome Powell came out and said the slowdown in hiring is a "real risk."

But the Fed's own model is like "nah, recession probability is dropping."

Make it make sense.

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The model uses the yield curve, which is honestly one of the best recession predictors we've got.

The logic: When short-term rates go higher than long-term rates, it means money's tight and things are stressed. That usually means a recession is incoming.

The pattern's been pretty clean historically:

But this time? Liquidity got squeezed hard through 2023 and 2024... and nothing happened. No recession.

Now the model's flipping back — acting like we already had the recession and we're entering recovery mode.

Except... we never had the recession.

When you overlay unemployment data, it gets clearer.

Every time liquidity tightens, unemployment rises shortly after. And guess what — that's exactly what's been happening.

If you shift the Fed model forward by about a year, the recession probability spikes line up almost perfectly with unemployment spikes.

So the pattern is: Liquidity tightens → jobs disappear. Liquidity loosens → jobs come back.

Translation: The Fed model is basically saying unemployment is about to peak — and things might actually stabilize in the short term.

Even with liquidity easing, the model still shows a 30% recession probability — which is pretty high for what's supposed to be a "recovery."

And banks aren't exactly opening the floodgates. Fed surveys show a ton of banks are still tightening lending standards for businesses.

That's textbook pre-recession behavior. Not post-recession behavior.

Until banks loosen up, don't expect the job market to suddenly boom.

We're probably not getting a brutal recession. But we're also not getting a rip-roaring economy.

Most likely scenario: A boring, muddy 12 months. Weak growth, stubborn unemployment, choppy momentum.

The kind of economy where everyone's just... fine. Not great, not terrible.

Plot twist, though: This has been an incredible environment for equity traders.

Despite all the mixed signals, stocks keep grinding higher. The S&P 500's technicals are still pointing up.

Could get bumpy short-term. But the trend's still intact.

TL;DR: The Fed's recession model says we're recovering from a recession that never happened, while jobs are tanking but stocks are ripping. Economics is fake and nothing matters. 🫠