LEAKED: Interest Rate Cuts Are Coming?!
Summary
TLDRThe video script discusses the growing concern over rising unemployment rates and the potential for a recession in the US, as indicated by the S rule. It highlights the shift in public perception from a strong labor market to one signaling economic weakness. The script also addresses the possibility of the Federal Reserve cutting interest rates in response to these economic indicators, despite previous assurances of a resilient economy. The analysis includes the significance of the 5-year to 10-year yield curve spread and its implications for the broader economy.
Takeaways
- 📉 The US payroll report has led to widespread discussions about interest rate cuts and increased recession risks, shifting perceptions from 'strong and resilient' to concern quickly.
- 📈 The unemployment rate, rather than the headline payroll number, is now the focus as it is rising globally, including in the US, indicating potential economic weakness.
- 💡 Major bank strategists anticipate eight consecutive interest rate cuts from the Federal Reserve starting in September, reflecting growing concerns about a recession.
- 🕵️♂️ The 'S rule', created by economist Claudia Sahm, is gaining attention as it uses the unemployment rate to signal a recession when it rises significantly from its low, and is currently nearing its threshold.
- 🗣️ Despite Chairman Powell's assurances of a 'soft landing', his recent testimony to Congress suggests a more cautious stance, acknowledging the labor market's cooling.
- 📊 The unemployment rate's increase from its record low of 3.4% last April to 4.1% in June is being closely watched as a significant economic indicator.
- 🚨 The 'S rule' is not a forecasting tool but a coincident indicator, suggesting that by the time it triggers, the recession may already be well underway.
- 📉 The 5-year to 10-year treasury yield spread, which has been inverted more often than not recently, is starting to un-invert, signaling potential changes in the bond market and economy.
- 📉 The inversion and subsequent un-inversion of the 5-year to 10-year yield spread have historically preceded economic downturns, suggesting that the current move could be a warning sign.
- 🏦 Wall Street strategists and economists are increasingly acknowledging the weakening labor market and economy, with some predicting significant interest rate cuts by the Federal Reserve.
- 🌐 The global economic context, with many economies already in recession, suggests that the US may not be immune to a downturn, despite previous optimism.
Q & A
What is the main focus of the discussion in the video script?
-The main focus of the discussion is the recent shift in economic sentiment from optimism to concern over recession risks, driven by changes in the unemployment rate and the potential for interest rate cuts by the Federal Reserve.
Why has the unemployment rate become a central topic in economic discussions?
-The unemployment rate has become central because it is rising in many parts of the world, including the developed nations, and it is considered a more reliable indicator of economic health than the headline payroll numbers.
What does the script suggest about the current state of the US labor market?
-The script suggests that the US labor market, once considered strong and resilient, is showing signs of weakness, with rising unemployment and potential implications for economic policy and interest rates.
What is the significance of the 'S Rule' mentioned in the script?
-The 'S Rule' is a recession indicator created by economist Claudia Sahm, which suggests that if the three-month average of the unemployment rate is half a percentage point above its 12-month low, the economy is likely in a recession.
How does the script describe the Federal Reserve's current stance on interest rates?
-The script describes the Federal Reserve's stance as gradually shifting towards a more cautious approach, with increasing expectations for rate cuts and Chairman Powell starting to hedge his bets on the strength of the economy.
What is the connection between the unemployment rate and the yield curve mentioned in the script?
-The script suggests that changes in the unemployment rate can influence the shape of the yield curve, particularly the 5-year to 10-year spread, which can be an early indicator of economic conditions and potential recessions.
What does the script imply about the effectiveness of interest rate cuts in stimulating the economy?
-The script implies that interest rate cuts may not be as effective in stimulating the economy as they are often portrayed, and that the focus on the unemployment rate and yield curve is more indicative of the economy's health.
What is the significance of the '5-year to 10-year spread' on the yield curve?
-The '5-year to 10-year spread' is significant because it can signal changes in the bond market and the economy. An inversion of this spread has historically been a warning sign of an impending recession.
How does the script characterize the current economic situation in comparison to past recessions?
-The script characterizes the current economic situation as being in a similar position to past recessions, with rising unemployment and yield curve movements that have historically preceded economic downturns.
What is the role of mainstream financial journalism in the context of the script's discussion?
-The script suggests that mainstream financial journalism may not always provide a clear or accurate picture of economic conditions, which is why alternative sources of information, like Eurodollar University, offer deeper insights and analysis.
What actions are being suggested for investors or observers of the economy in light of the current situation?
-The script suggests that investors and observers should pay close attention to indicators like the unemployment rate and the yield curve, and consider the potential implications of these indicators for their financial decisions.
Outlines
📉 Economic Uncertainty and Rising Unemployment Concerns
The script discusses the shift in public perception from a strong economy to one facing potential recession, triggered by a rising unemployment rate rather than the previously reassuring payroll numbers. It highlights the increased talk of interest rate cuts and the focus on the unemployment rate as a more reliable indicator of economic health. The Federal Reserve's strategy is questioned, with some expecting eight consecutive rate cuts starting in September. The script also mentions the S rule, which has started to flash warnings due to the unemployment rate's movement, and the treasury market's potential signals of economic distress. Despite Chairman Powell's assurances of a soft landing, there's an undercurrent of concern as he begins to hedge his bets.
📈 The S Rule: A Coincident Indicator of Recession
This paragraph delves into the S rule, formulated by economist Claudia Sahm, which identifies a recession when the three-month average of the unemployment rate is half a percentage point above its 12-month low. The June numbers indicate the U.S. is nearing this threshold, causing concern on Wall Street. The S rule is not a forecasting tool but a coincident indicator, meaning it confirms the start of a recession after it has already begun. Historical data show that the rule has lagged behind the actual start of recessions, but its current position is raising eyebrows among economists and strategists, who are now factoring in the possibility of Fed rate cuts in response to economic weakness.
📉 Yield Curve Signals and Economic Activity
The paragraph discusses the significance of the 5-year to 10-year yield curve spread as an economic indicator, noting its inversions as a potential warning sign of economic downturns. The spread has been inverted more often than not in recent years, and its recent movements are being closely watched for signs of a full bull steepening, which could indicate an impending recession. The paragraph also mentions the importance of the unemployment rate as a key economic indicator, with its rise suggesting a weakening labor market. Analysts are calling for a more aggressive stance from the Federal Reserve in cutting rates to counteract these economic signals.
🚨 The Unemployment Rate as a Key Economic Indicator
The final paragraph emphasizes the importance of the unemployment rate as the most charitable view of the labor market, and its rise as a significant signal of economic weakness. It discusses how this indicator, once dismissed, is now commanding attention from Wall Street strategists and policymakers, including Fed Chairman Powell. The paragraph also touches on the potential implications of the 5-year to 10-year yield curve spread for the broader economy and the possibility of a full bull steepening as a timing and confirmation signal for a recession. The speaker concludes by reiterating the need to monitor these indicators closely as the economy may not be as strong and resilient as previously believed.
Mindmap
Keywords
💡Interest Rate Cuts
💡Recession Risk
💡Unemployment Rate
💡S Rule
💡Yield Curve
💡Economic Indicators
💡Inflation
💡Labor Market
💡Monetary Policy
💡Economic Activity
💡Eurodollar University
Highlights
Interest rate cuts and heightened recession risk are now major topics of discussion following the US payroll report.
The unemployment rate is gaining more attention than the headline payroll number, indicating a shift in economic perception.
Expectations for lower interest rates are increasing alongside rising unemployment rates in the developed world.
A major bank strategist predicts eight consecutive rate cuts from the Federal Reserve starting in September.
The S rule, created by economist Claudia Sahm, is being widely discussed as a recession indicator.
The S rule suggests the US economy may be in a recession, with the unemployment rate moving significantly from its low.
Jerome Powell, Chairman of the Federal Reserve, is hedging his bets on the economy's strength amid labor market softening.
The labor market conditions are returning to pre-pandemic levels, indicating a potential economic slowdown.
The unemployment rate's rise to 4.1% in June is a significant move from its previous low, causing concern.
The S rule's calculation is close to triggering a recession signal, intensifying economic concerns.
Claudia Sahm's rule has generated increasing talk on Wall Street about the labor market's cracks.
Economists are speculating about the Federal Reserve's potential rate cuts in response to economic weakness.
The 5-year to 10-year yield curve spread is an important indicator of economic conditions and has been inverting on and off.
The yield curve's 5-year to 10-year spread has recently shown signs of bull steepening, which could signal economic changes.
The potential full bull steepening of the yield curve could be a timing and confirmation signal of economic conditions.
Wall Street strategists and the Federal Reserve are paying close attention to the unemployment rate as a key economic indicator.
The transcript suggests that the US economy may not be as strong and resilient as previously believed.
Transcripts
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 uhoh in a hurry
and it's not because of the headline
payrolling 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
any One 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 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 uh was still at a low
level of 4.1% in
June and it's at a 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 row 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 on the 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 3month
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
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 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 the great not recession the
S rule didn't get triggered half a
percentage Point uh until April of 2008
already five months into 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 3mon basis
it was we were already past bare Sterns
and the the first half of the great knot
recession was well underway by that the
cycle before that in May 2001 the psalm
rule calculation or the psalm Psalm
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 Som 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 Som rule kicking in and
with it a recession that potentially
could force policy makers 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 headyy Pace in
2023 with inflation resuming its
slowdown after some unexpected
stickiness said City analyst led by
chief us 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 quartero
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 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 10year
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 10e 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
fiveyear and 10year 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 fiveyear
10year 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 10e space that's
something you need to stand up and pay
attention to and 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 signal 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 was
changes underway in the treasury market
of course the bond rally actually
happened at that time too so as you get
the 5year 10year 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 5year 10year spr 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 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 fiveyear 10e 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 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 5year 10e 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
months before Allen 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 5year 10e
spread un inverting and bull steepening
in 20 01 before the recession there as
well but as I keep pointing out it's the
5year 10e spread by itself is not
conclusive and right now the 5ye 10e
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 so
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
Посмотреть больше похожих видео
「薩姆規則」觸發⚠美國1500萬人將失業😱?|又一「衰退警號」?|聯儲局不減息屬玩火|投資甚麼自保?🙏【施追擊】#股市 #美股 #投資 #crypto
L'INIZIO del CROLLO dei Mercati: è il Colpo di Grazia (FED+Blackout) ?
Wall Street Doesn't Usually Do This...
🚨 זה יהפוך הכל - מורידים ריבית - האם נקרוס כמו בעבר?
AS Terancam Resesi, Apa Dampaknya Bagi Ekonomi Indonesia?
The Global Stock Market Crash JUST HAPPENED. And Its Much Worse Than We Could've Imagined…
5.0 / 5 (0 votes)