Indeed, an exogenous decline in term premiums would make financial conditions more accommodative and would, other things being equal, be followed by higher growth. To account for these developments, an estimate of the term premium can be added to a simple regression model of the relationship between real GDP growth and the slope of the yield curve.
Forecasts of future real GDP growth from this extended model are higher than those from models that include only the slope of the yield curve. And the forecasts from this extended model currently are very close to the private-sector consensus forecast. Thus, we have reasons to believe that the current configuration of the term structure is not signaling an economic downturn.