The Sahm Rule has been triggered. What will happen to the unemployment rate next?
If it continues to rise, it will basically be a recession. It is not impossible to fall, but the Fed will be entangled again. This is why it is said that high interest rates are often accompanied by recessions, just the time of occurrence.
What is the Sahm Rule?
The Sahm Rule is an economic indicator proposed by American economist Claudia Sahm to identify the beginning of a recession. The Sahm Rule determines whether a recession is likely to occur by comparing the current unemployment rate with the lowest unemployment rate in the past 12 months.
Specifically, if the current three-month moving average unemployment rate is 0.5 percentage points or more higher than the lowest unemployment rate in the past 12 months, the Sahm Rule will be triggered. This is generally regarded as a relatively timely and reliable signal that the economy may have entered a recession. The advantage of the Sahm Rule is that it can quickly identify a recession without having to wait for the release of broader economic data.
The lowest unemployment rate in the past year was 3.7%, and this time it was 4.3%, which was 0.6% higher, so the Sahm Rule was triggered. Of course, the Sahm Rule is not 100% accurate, and it is just a judgment tool, but if the unemployment rate continues to rise, then the risk of economic recession will be very high.
