After last week's payroll report in the US, everyone is now talking interest rate cuts in heightened recession risk. Suddenly, they're everywhere. We went from strong and resilient to uh-oh in a hurry, and it's not because of the headline payroll number. More and more people are realizing that one is faulty and unreliable. Instead, the unemployment rate has grabbed the world's attention. That's because, as I talked about in the recent video, unemployment is rising throughout much of the world and a majority of the developed world. The United States, as I said in it, is not immune. So, we're hearing increasing references and expectations for lower interest rates, along with that higher unemployment. One major bank strategist team just came out with expectations for eight consecutive rate cuts out of the FED starting in September. Basically, the recession scenario is becoming much more difficult to laugh off under the cover of a strong and resilient labor market that hardly anyone believes anymore. That's why you're probably hearing an explosion of references to something called the S rule. The unemployment rate has moved

high enough already. It is triggering all the unnecessarily complicated economistic measures into flashing major warnings too, and there's another potential major warning. This one's starting to develop in the treasury market, a possible uninversity. Against all of that, J Powell is right now in front of Congress telling the politicians he's got it all covered. The soft Landing is in the bag, nothing more than just a little slowdown. Yet even he too is starting to hedge his bets a little and sounding a little bit more doish than he had in the past. He'll still stay strong and resilient, but underneath his breath, you can hear the hedging going on. In the labor market, a broad set of indicators suggests that conditions have returned to about where they stood on the eve of the pandemic, strong but not overheated. The unemployment rate has moved higher but was still low, was still at a low level of 4.1% in June, and it's at a low level of 4.1% historically speaking, but that's not

important and he knows it. It's not the level that matters here. It's not the level that's gotten everyone's attention. It is the move from the low last year. It had been much lower, 3.4% last April, which was a 50-plus-year low. 50-plus-year low that everyone talked about incessantly. And the unemployment rate is the best view of the labor market. It discounts all of those who fall out of the labor force. So if the most charitable view of the labor market suddenly becomes a lot less charitable, that's something to pay attention to. And Powell is indeed doing that as he also told Congress at the same time, In light of the progress we've made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment. Setting aside the idea that interest rates have any power to influence any of these things.

what he's basically saying is, yeah, we're getting a little uncomfortable because we're seeing the softening in the labor market, and we are indeed beginning to wonder if we've got this consumer price thing under controler. We're confident about it, at least according to our definition of how things go, and maybe we need to start look paying more and more attention to what's happening over here with that unemployment. Yes, it's low, and I'm going to say it's low because that makes it sound sound benign, but it has moved up substantially to the point that everyone is now talking about unemployment. And as I mentioned before in the context of rising unemployment around the world, this is not something that people can just casually dismiss any longer as they have been doing all this time, really going back to September and October when everything really started to change. But to get behind all of this unnecessary noise or what passes for mainstream Financial journalism, that's why Euro doll university offers memberships and subscriptions, and they are now on sale at some of the lowest

prices we've ever offered since our launch a couple years ago. We got tons of videos on everything from the basics of money and financial concepts, even the basics of QE and QT that you won't get anywhere else. The history of money and especially Ledger money, the euro dollar. We have a daily deep dive to dive far deep deeper behind all the topics that I bring up here on YouTube. Also, a daily briefing to keep you up to date on everything that's happening in money and macro. As I said, anniversary sale prices for a limited time. Check it all out at our website, Euro dollar University. The PM rule suddenly, we get mainstream articles all over the place. Bloomberg, CNBC, Reuters, all of them talking about the S rule. In fact, CNBC is I'll talk about in just a moment, got Claudia S on the channel to talk about what's happening in the labor market. What is the S rule? It was created by an economist by the name of Claudia S in 2019. And basically, it's a simple

mathematical creation. When the 3-month average of the unemployment rate is half a percentage point above its 12-month low, the economy is in recession. It is basically a coincident recession signal. And as of the latest month, the June numbers that just came out last Friday, the sum calculation was 0.4. Three so just 710 of a percentage point below what would trigger this s. Som rule ruling that we're in a recession. But we've been in a recession, at least in the danger zone, at least according to this one mathematical calculation going back to last October. It hasn't moved above the half percentage point that usually is the triggered threshold or what everybody accepts as the trigger threshold. But being just below it and moving, creeping a little bit higher along the way, that that's what's got everyone's attention. Everyone is starting to see that the unemployment rate is signaling something substantial here that's not strong and resilient. The labor market may actually have cracked. And this is not a forecasting tool either, by the way. This is, as I said, a

coincident indicator. It tells you once a recession has already begun, not that one is coming, that it has already started. If you go back in time using the Som rule numbers and the calculations, there, by the time you get half a percentage point on a three-month average that's above its 12-month low, you're deep into recession already. Go back to the great knot recession. The Som rule didn't get triggered half a percentage point until April of 2008, already five months into the recession. The NBR would later in December 2008 date the start of the recession in December 2007. So, by the time the Som rule got to the half percentage point above the 12-month low on the average 3-month basis, we were already past Bear Stearns, and the first half of the great knot recession was well underway. By that, the cycle before that in May 2001, the Som rule calculation or the Som number was 0.47, so just shy of the rule, and it would trigger it the following.

month in June of 2001, but the dotc recession started, according to the NBR, in March. So it was 3 months into the dotc recession before we finally got the confirmation from Claudia 's number. November 1990, you got a trigger then, but that was already several months into the recession which began in July, and a lot of recessions begin in the summertime. So November 1990, by the time you get the half percentage Point trigger in the s number, already several months into recession. So economists around Wall Street are paying attention to the unemployment rate. They're using these various numbers, knowing that there is sub something substantial going on here, but we don't, we don't really need the Som r. We just need to look at the unemployment rate itself. When you look at the unemployment rate, the fact that it's moved up 7/10 of a percentage Point since the low is all you really need. That's a solid recession signal already, but with everybody talking about the unemployment rate and of course now the

S rule. CNBC decided they were going to interview Claudia S. because why not. What she said was, or what the article said was, as the jobless level has ticked up in recent months. It's actually gone up every month for the last four months. It's up 410 of a percentage point since January. The S rule has generated increasing talk on Wall Street. It's everywhere that what has been a strong labor market was never really strong, is showing cracks, and pointing to potential trouble ahead. Well, if the S rule triggers, it's not ahead, it's already happening. That in turn has generated speculation over when the FED finally will start reducing interest rates. The markets have been doing that. S, who's now the chief economist at New Century Advisors, said the central bank is taking a big risk by not moving now with gradual cuts. By not taking action, the FED risks the S rule kicking in and with it a recession that potentially could force policymakers to take more drastic action. Who cares about the FED?

it's about the economy, and it's got to the point where, especially with the unemployment rate punctuating all of this weakness. Even mainstream economists and strategists at the biggest banks and brokers are throwing in the towel and saying, We see the FED cutting rates very sharply in recognition of what's happening in the economy. Again, it's not rate cuts aren't going to help. They're just to Fed admitting and confessing to the weakness that they also now agree and acknowledge, and they're acknowledging it by lowering short-term interest rates. The economy has cooled off from its heady pace in 2023, with inflation resuming its slowdown after some unexpected stickiness, said City analyst led by chief U.S. economist Andrew Hollen horse, but the Institute for Supply Management Service sector gauge, which abruptly reversed into negative territory. It wasn't abrupt. It's been coming for months in the monthly jobs report, which showed unemployment rising to 4.1%, have raised the risk of a sharper weakening.

of economic activity and a faster pace of rate cuts. They added this being City's strategist led by their chief US economist. In fact, they have now forecast that the Federal Reserve is going to be forced into eight consecutive quarter rate cuts beginning in September, and they're going to be forced into that because, by their reading, the US economy is not strong and resilient. Now, Holland Horse and City Group, they also mentioned the decline in temp jobs that I highlighted from the payroll report. That's a clear cyclical signal too, suggesting substantial deterioration. And of course, he brought up the S rule because everybody's bringing up the same thing nowadays. Continuing, he said on appearance on Bloomberg TV, most economic activity is going to be more responsive to a 5-year yield, the 10-year yield. It's not really about the overnight policy rate. So, there really are questions about how much can you transmit that stimulative effect of lower policy rates. And it's not stimulative at all. And he realizes that, which is why he's focused on the five.

and 10-year part of the treasury curve because there's more informational content in that as well as any possible effect and impact on the economy. Then up at the front end of the curve where the FED is who's basically saying is the fed's going to panic into rate cuts because they see weakness that is far beyond their own understanding and thresholds for tolerating that weakness and unemployment rate is a big one. It's one you can't really ignore because as I said before it is the most charitable view of the labor market and suddenly it's not very kind to what's happening. But speaking about the five-year and 10-year part of the curve which is a part of the curve that I watch all the time. Sort of an initial indication about conditions in the general economy, the monetary system, whatever the case may be. The five-year 10-year spread basically the entire financial world lives and operates in that part of the curve. Got mortgages and everything else 5 to 10 years now it

isn't conclusive, but if you're watching the yield curve and you see big changes happening that five to 10 space, that's something you need to stand up and pay attention to. The 5 to 10 year spread has been inverted on and off over the last couple years. It's been more often inverted than not, and when it uninverted, it has signaled big changes in the bond market. It uninverted in a substantial way way back in May of last year at the tail end of the banking crisis, just after First Republic failed, which was sort of a final last Terra of that part of the banking crisis and that part of the yield curve history. It uninverted again very more sharply, more bull steepening in October, even before we got to the big bond rally. The 5ye 10e spread uninverted, signaling that there were changes underway in the treasury market. Of course, the bond rally actually happened at that time too. So as you get the 5-year 10-year uninverted last year, we

got the big rally in bonds. Maybe the recession began, half a recession at the very least. As we see, they all over the household survey, the unemployment rate, the 5-year, 10-year spread flipped positive again, uninverted bull steepening over the last several weeks, so the point that it's made a pretty noticeable move. And as of yesterday, got up to about six basis points and a positive spread on inverting bull steepening potentially there. This is something we see as a maybe a first step toward the full curve moving in that direction, the bull steepening case in the curve. It's not again, the 5-year, 10-year spread is just an initial signal. We would like to see it make a more decisive move as it does preceding recessions, such as in 2007. You got a really big uninversity in July of 2007, heading into the crisis in August. Same thing also if you go back to 2000, just before the dotc recession, you see the 5-year, 10-year spread, one of the

first parts of the curve to un invert in the bull steepening case as early as November 2000. In fact, it was a couple of months before Alan Greenspan started cutting rates in January of 2001, and it was about five months before, four months before the recession began. So you see a pretty substantial move in the 5-year 10-year spread un inverting and bull steepening in 2001 before the recession there as well. But as I keep pointing out, it's the 5-year 10-year spread by itself is not conclusive. And right now, the 5-year 10-year spread on inversion that we're seeing, while consistent with a B steepening case, it's just a a nent move. It's not anything that is conclusive and decisive, at least not yet. But going along in the context of everything else that we're talking here, that's something that we need to pay attention to because it could potentially point to the full bull steepening case, which would be a timing signal as well as confirmation signal.

now we got everybody talking about the unemployment rate, and again the unemployment rate is the most charitable view of the labor market. And if the most charitable view of the labor market is suddenly less kind about the labor market, that's something that you need to pay attention to. And Wall Street strategists are now paying full attention to it, as is Mr. Powell, as he kind of admitted under his breath in testimony before Congress. They see the unemployment rate, and suddenly this strong and resilience in the labor market doesn't fly, doesn't wash anymore. The labor market and the US economy are far weaker than people have been giving you credit because they have been led to believe that we dismiss all of these warning signs along the way because J. Powell said strong and resilient. Well, the unemployment rate is one signal that it's become impossible to completely set aside and ignore. I've said all along that this was a cycle. As a cycle, this was always how was going to end while the US watched economy after economy around the world tilt in the recession.

it was only a matter of time before it tipped into one two after all. I believe we've been halfway to a recession since last September and October, and maybe got three qus of the way there over the last couple months as the unemployment rate rose. Continued claims spiked, companies complained about their customers having no money, to the point that even the cheerleaders on Wall Street are changing their tune and embracing timing signals like the Som Rule. And while they do, we're going to keep our eye on other timing signals too across the yield curve because the economy is not strong and resilient, and more and more people are starting to realize it. I went over all the gory details behind the ISM Services index and its solidly recessionary signals in the video linked below. As always, thank you very much for joining me. Check out your University's anniversary sale, and if you are a new member or an existing member, I can't thank you enough. So thank you to all your members and subscribers, and until next time, take care.

LEAKED: Interest Rate Cuts Are Coming?!

Monetary science reborn. Rediscovering the principles of currency. Putting central banks where they belong. Welcome to Eurodollar University, your place for all things modern money and monetary science. The YouTube channel for Jeff Snider, from here you can begin to investigate all the ways in which the global monetary system impacts you: economy, politics, investments and more.