Interest Rates And Recessions

Recently I took a look at interest rates (1 Yr CMT) and the relationship with recessions.

What I found was a consistent pattern of the 1 Yr CMT and recessions.

Based on the last seven recessions, including the recession ending June 2009, the 1 Yr CMT continued lower for an average of 11 months after the end of the recession and then began a sharp rise that took, on average 40 months from the official end of the previous recession to the ultimate peak in interest rates for that cycle.

The overall pattern of the interest rate cycle:
Step 1: End of recession
Step 2: Interest rates continue to drop after the end of the recession for an average of 11 months, with the average rate of the CMT continuing lower by 1.18%.
Step 3: Interest rates begin to rise, for 40 months from the end of recession to the ulimate rate peak, with a total increase in the CMT rate, from rate trough to rate peak, of 6.05%.


The analysis was based on monthly data, provided by the St. Louis Federal Reserve.

Period 1
End of Recession: Nov 1970
1 Yr CMT, Nov 1970: 5.51%
1 Yr CMT, rate trough, March 1971: 3.69%
Rate Decline at Trough: -1.82%
CMT Trough, Number of months from end of recession: 4 months

CMT Rate Peak: 9.36%
CMT Rate Peak, Date: August 1974
CMT Rate Peak, Number of months from end of recession: 45 months
Increase in Rates: End of Recession to Interest Rate Peak: 3.85% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 5.67% increase

Period 2
End of Recession: March 1975
1 Yr CMT, March 1975: 6.11%
1 Yr CMT, at rate trough, December 1976: 4.89%
Rate Decline at Trough: -1.22%
CMT Trough, Number of months from end of recession: 21 months

CMT Rate Peak: 15.82%
CMT Rate Peak, Date: March 1980
CMT Rate Peak, Number of months from end of recession: 60 months
Increase in Rates: End of Recession to Interest Rate Peak: 9.71% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 10.93% increase

Period 3
End of Recession: July 1980
1 Yr CMT, July 1980: 8.65%
1 Yr CMT, at rate trough, July 1980: 8.65%
Rate Decline at Trough: 0.00%
CMT Trough, Number of months from end of recession: 0 months

CMT Rate Peak: 16.72%
CMT Rate Peak, Date: August 1981
CMT Rate Peak, Number of months from end of recession: 13 months
Increase in Rates: End of Recession to Interest Rate Peak: 8.07% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 8.07% increase

Period 4
End of Recession: November 1982
1 Yr CMT, November 1982: 9.16%
1 Yr CMT, at rate trough, January 1983: 8.62%
Rate Decline at Trough: -0.54%
CMT Trough, Number of months from end of recession: 2 months

CMT Rate Peak: 12.08%
CMT Rate Peak, Date: June 1984
CMT Rate Peak, Number of months from end of recession: 19 months
Increase in Rates: End of Recession to Interest Rate Peak: 2.92% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 3.46% increase

Period 5
End of Recession: March 1991
1 Yr CMT, March 1991: 6.40%
1 Yr CMT, at rate trough, September 1992: 3.18%
Rate Decline at Trough: -3.22%
CMT Trough, Number of months from end of recession: 18 months

CMT Rate Peak: 7.14%
CMT Rate Peak, Date: December 1994
CMT Rate Peak, Number of months from end of recession: 45 months
Increase in Rates: End of Recession to Interest Rate Peak: 0.74% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 3.96% increase

Period 6
End of Recession: November 2001
1 Yr CMT, March 1991: 2.18%
1 Yr CMT, at rate trough, June 2003: 1.01%
Rate Decline at Trough: -1.17%
CMT Trough, Number of months from end of recession: 19 months

CMT Rate Peak: 5.22%
CMT Rate Peak, Date: July 2006
CMT Rate Peak, Number of months from end of recession: 56 months
Increase in Rates: End of Recession to Interest Rate Peak: 3.04% increase
Increase in Rates: Interest Rate Trough to Interest Rate Peak: 4.21% increase

Period 7
End of Recession: June 2009
1 Yr CMT, March 1991: 0.51%
1 Yr CMT, at rate trough, October 2010: 0.23%
Rate Decline at Trough: -0.28%
CMT Trough, Number of months from end of recession: 16 months

CMT Rate Peak: ?
CMT Rate Peak, Date: ?
CMT Rate Peak, Number of months from end of recession: ?
Increase in Rates: End of Recession to Interest Rate Peak: ?
Increase in Rates: Interest Rate Trough to Interest Rate Peak: ?

Averages for 7 Periods:
Average Initial Drop in Rate: -1.18% , 11 months
Average Rate Increase From Trough to Peak: 6.05% Increase, 40 months After End of Recession

Target of 1 Yr CMT, based on 2001 Recession/Recovery: 4.44%
Target Date of Next Peak, based on 2001 Recession/Recovery: Feb 2013