Now that we have overcome the volatility of this week, it’s time for the market to worry about something else, and that is the Sahm rule. Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months. The current reading is 0.53, and the track record of this indicator since the 70’s is perfect. Every recession since then, has had a Sahm indicator of 0.50 or more. J Powell will probably say the Fed doesn’t rely on one indicator only, and FOMC members will repeat through speeches, before the next committee in September, the goal is to have 2% target for inflation and full employment. But if employment continues to deteriorate, the Fed will need to do something to avoid the same criticism they had when they were late to recognize the spike in inflation.
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