The summer calm will have to wait a little longer as the coming week is filled with crucial events. Canada and New Zealand are geared to raise interest rates, although their currencies are ultimately at the mercy of global recession risks. In China, it’s a close call whether the economy contracted in Q2. Most importantly, US inflation might finally be losing its punch.

As written Sunday, CAD/JPY target at 103.24 traded to 103.35 lows from 106.00's and 300 pips. CAD/JPY is the middle currency pair that trades between AUD/JPY and NZD/JPY Vs EUR/JPY and GBP/JPY. CAD/JPY is the preferred currency to trade along with EUR/JPY and GBP/JPY. For next week, CAD/JPY sits oversold , EUR/JPY doesn't have a clue to direction at 137.00's, GBP/JPY do or die at 162.06. AUD/JPY short next week at 93.00's and short NZD/JPY at 84.00's. USD/JPY has been a dead issue for 2 weeks and stuck from 136.00's to 134.00's. Nothing more expected and the problem is seen from DXY. DXY achieved severe overbought status this week at 106.00's and decided to travel 100 pips higher to more overbought at 107.00's. DXY higher is traveling 100 pips higher into more massive overbought week to week and caught inside 200 pip ranges. Higher DXY into overbought sends EUR/USD lower to trade massive oversold. DXY and EUR/USD as FX leaders remains key drivers to overall markets as the distance between both are separated to extremes. Both must meet in the middle to normalize markets then decide proper normalized levels. All markets as FX prices drive and dictate all markets. SPX traded 169 points this week, 200 points last weelk and 200 points 2 weeks ago. Speaks volumes to the DXY and EUR/USD overbought and oversold extremes. SPX target this week at 3999 will struggle to achieve destinations. Today, any price above 3925 goes short. AUD/USD. RBA raised July 4th and AUD/USD traded 132 pips range from 0.6894 to 0.6762. A change of interest rates today and in the future is not worth the discussion as the change is seen and traded inside the current price. We're exposed to more public relations today than vital market knowledge, expertise and professionalism. AUD/USD trades oversold from 0.6800's and targets low 0.6900's easily and struggles to upper 0.6900's. Big winners over last weeks were EUR/NZD, GBP/AUD and EUR/AUD. All will maintain wide ranges and big winner status. All are recommended trades for the week ahead. All are deeply oversold to include GBP/NZD. USD/CAD trades deeply overbought and finally but slowly breaking out of its dead range coma over last months. Normally a great currency, good mover and terrific profits but lately extremely dead. Watch EUR/CAD as the next highest currency price to USD/CAD at current 1.3160. USD/CAD at 1.3000's vs GBP/USD at 1.1900's and 1100 pips is fairly high to extreme. Overall currency prices trade at massive overbought and oversold extremes. This market condition is the worst and most dangerous to all market periods and impossible to hold. A turnaround will come and should hit violently. EUR/USD, parity and ECU units EUR/USD from 2008 highs at 1.6011 to 1.0160 lows traveled a difference of 44% yet a decrease of 36%. EUR/USD to Parity at 1.00 entails another 1% drop or a total at 37% from 1.6011. Per year, EUR/USD dropped 4.62%. EUR/USD at 1.6011 highs aligned against USD/DEM as EUR/USD legacy currency at the January 1999 introductory rate at 1.6846 or DEM/USD 0.5936 Vs EUR/USD at 0.8613. DXY was 93.55 or 0.9344. EUR/USD increased from 0.8613 to 1.6011 at 85% or roughly 8% per year. Since January 1972 and the start of the new 50 year cycle and the new experiment to align exchange rates with interest rates, EUR/USD traded below parity 84 of 600 months from 1972 -1973, 1982 -1986 and 2000 to 2002 during the 9/11 terrorist attacks on the World Trade Center. Recall 1971 – 1972 and the Nixon revaluation to Gold. From 1982 to 1986 involved the Lourvre and Paris Accords to re-rate currencies to USD. A particular worldly situational reset existed for EUR’s justification below parity. EUR/USD transferred from Dem and all European currencies at 1:1. Below parity was never the intention, goal or purpose in 1999. ECU and EUR When the euro was introduced in January 1999, it replaced the ECU at par (that is, at a 1:1 ratio). ECU linked to the European Monetary System? The EMS was a limited-flexible exchange rate system that defined bands in which the bilateral exchange rates of the member countries could fluctuate. The bands of fluctuation were characterized by a set of adjustable bilateral central parities and margins that defined the bandwidth of permissible fluctuations. This set of parities was called a parity grid as it defined parities for all combinations of the ECU constituent currencies. The borders of the fluctuation bands were described by the upper intervention point and lower intervention point. Typically, the bandwidths were 2.25% to each side, with a wider margin for the Italian Lira. After a currency crisis in 1993, the bands were widened to 15% on each side, but in practice the fluctuations were kept within a narrow band. When a market exchange rate reached...

We’ve experienced some interesting market moves since the beginning of this year. Most significantly, at least for those who have pensions and investments, has been the savage decline in equities, particularly those in the tech sector. After hitting its all-time high in November last year, the US NASDAQ 100 lost 34% of its value over the following seven months. It had a modest rally, but the index has since given back most of these gains and remains within spitting distance of its mid-June low. The last time we experienced such market carnage was back in early 2020 when the NASDAQ 100 fell 31% on the pandemic panic. But it did this in the space of one month, whereas the current sell-off has lasted considerably longer. This latest decline came as investors reacted to a sudden hawkish turn from central bankers who finally reacted to headline inflation numbers as they hit multi-decade highs. Led by the US Federal Reserve, developed world central banks had previously insisted that the post-pandemic pick-up in inflation was transitory in nature, suggesting there was no need for monetary tightening. The thinking went that the global economy would soon return to normality as supply disruptions were eliminated and supply and demand got back in kilter.  Monetary and fiscal stimulus But that just hasn’t happened. The combined monetary and fiscal response to the government-imposed pandemic shut-down dramatically added to the stack of money already in the financial system. But rather than getting stuck in banks and other financial institutions as it had previously, this time round much of it went directly to individuals who were more than willing to spend it. Demand up; supply of goods constrained. Add in the Russian invasion of Ukraine and the resultant spike in energy prices and suddenly there’s a problem that even the economists at the Fed and Bank of England are forced to acknowledge.  Too late Most governments give their central banks the job of controlling inflation with a target, mandated or otherwise, but in every case arbitrary, of around 2%. Having done everything in the book since the Great Financial Crisis to push inflation up to this level, central bankers have proved to be powerless to control it now that it has shot above target. All they can do is try to take some heat out of the economy, principally by raising interest rates. But having delayed tightening monetary policy for so long, now they are doing this as economic growth slows significantly following its post-pandemic surge higher. This has significant effects on the global economic outlook which is still getting priced into financial assets.  Bond yields slump Perhaps the starkest example of this is yields on US Treasury notes which have pulled back substantially since mid-June. In early July both the yield on the 2 and 10-year notes were both around 2.80% and well below the 3.4-3.5% levels they hit in mid-June. This was just after the Federal Reserve hiked rates by 75 basis points and indicated that they would do the same in July. While we’ve seen a pick-up in yields since then, the pull-back suggests that investors expect the Federal Reserve to start cutting rates relatively soon, perhaps next year, as economic growth slows. The hope is that the Fed can engineer a soft landing and avoid a deep or long-lasting recession. Incoming data Next week sees the latest update on US CPI, the key inflation measure as far as investors are concerned, if not the Federal Reserve. Last month it hit 8.6%, its highest level in forty years. The concern is that it has yet to peak, which has forced the US central bank to undertake an unexpectedly aggressive pace of monetary tightening. This is having a devastating impact on equity and bond prices. But any indication that inflation has peaked, and that the Federal Reserve can ease up on raising rates could ease the downside pressure on equities. That’s why the central bank, and investors everywhere, are fixated on the release of every single scrap of inflation data.  And earnings We also have the start of the second quarter earnings season which could be another headwind for asset prices. Key here will be forward guidance from companies. If the numbers are bad, but corporations say they can see a way forward, then we could get a bounce-back in stock prices. But without this, equities could continue to struggle.

We’ve experienced some interesting market moves since the beginning of this year. Most significantly, at least for those who have pensions and investments, has been the savage decline in equities, particularly those in the tech sector. After hitting its all-time high in November last year, the US NASDAQ 100 lost 34% of its value over the following seven months. It had a modest rally, but the index has since given back most of these gains and remains within spitting distance of its mid-June low. The last time we experienced such market carnage was back in early 2020 when the NASDAQ 100 fell 31% on the pandemic panic. But it did this in the space of one month, whereas the current sell-off has lasted considerably longer. This latest decline came as investors reacted to a sudden hawkish turn from central bankers who finally reacted to headline inflation numbers as they hit multi-decade highs. Led by the US Federal Reserve, developed world central banks had previously insisted that the post-pandemic pick-up in inflation was transitory in nature, suggesting there was no need for monetary tightening. The thinking went that the global economy would soon return to normality as supply disruptions were eliminated and supply and demand got back in kilter.  Monetary and fiscal stimulus But that just hasn’t happened. The combined monetary and fiscal response to the government-imposed pandemic shut-down dramatically added to the stack of money already in the financial system. But rather than getting stuck in banks and other financial institutions as it had previously, this time round much of it went directly to individuals who were more than willing to spend it. Demand up; supply of goods constrained. Add in the Russian invasion of Ukraine and the resultant spike in energy prices and suddenly there’s a problem that even the economists at the Fed and Bank of England are forced to acknowledge.  Too late Most governments give their central banks the job of controlling inflation with a target, mandated or otherwise, but in every case arbitrary, of around 2%. Having done everything in the book since the Great Financial Crisis to push inflation up to this level, central bankers have proved to be powerless to control it now that it has shot above target. All they can do is try to take some heat out of the economy, principally by raising interest rates. But having delayed tightening monetary policy for so long, now they are doing this as economic growth slows significantly following its post-pandemic surge higher. This has significant effects on the global economic outlook which is still getting priced into financial assets.  Bond yields slump Perhaps the starkest example of this is yields on US Treasury notes which have pulled back substantially since mid-June. In early July both the yield on the 2 and 10-year notes were both around 2.80% and well below the 3.4-3.5% levels they hit in mid-June. This was just after the Federal Reserve hiked rates by 75 basis points and indicated that they would do the same in July. While we’ve seen a pick-up in yields since then, the pull-back suggests that investors expect the Federal Reserve to start cutting rates relatively soon, perhaps next year, as economic growth slows. The hope is that the Fed can engineer a soft landing and avoid a deep or long-lasting recession. Incoming data Next week sees the latest update on US CPI, the key inflation measure as far as investors are concerned, if not the Federal Reserve. Last month it hit 8.6%, its highest level in forty years. The concern is that it has yet to peak, which has forced the US central bank to undertake an unexpectedly aggressive pace of monetary tightening. This is having a devastating impact on equity and bond prices. But any indication that inflation has peaked, and that the Federal Reserve can ease up on raising rates could ease the downside pressure on equities. That’s why the central bank, and investors everywhere, are fixated on the release of every single scrap of inflation data.  And earnings We also have the start of the second quarter earnings season which could be another headwind for asset prices. Key here will be forward guidance from companies. If the numbers are bad, but corporations say they can see a way forward, then we could get a bounce-back in stock prices. But without this, equities could continue to struggle.

Summary United States: Payroll Growth Sizzles in June Despite Recession Fears June brought a strong 372K payroll gain, beating the consensus and calming recession concerns. The unemployment rate held at 3.6%. Total job openings remain highly elevated but fell by 427K to 11.3 million in May. The ISM services index edged down to 55.3 during June, marking a two-year low. The trade gap narrowed to $85.5 billion in May as exports rose at a slightly faster pace than imports. Next week: Consumer Price Index (Wed.), Retail Sales (Fri.), Industrial Production (Fri.) International: Some Cracks in Canada's Economic Outlook The past week saw some underwhelming news from Canada. June employment unexpectedly fell by 43,200, and while the Bank of Canada's Business Outlook Survey reported solid sales over the past three months, it also signaled a slowing in sales going forward. We expect Canadian GDP growth of 3.9% in 2022, but growth of just 1.5% in 2023. In Scandinavia, Sweden's GDP rose in May, while Norway's mainland GDP fell. Finally, the Reserve Bank of Australia raised its policy rate 50 bps at this week's monetary policy meeting, as expected. Next week: U.K. GDP (Wed.), Bank of Canada Policy Announcement (Wed.), China GDP (Fri.) Interest Rate Watch: Yield Curve Signals Recession on the Horizon The yield on the two-year Treasury note moved above the yield on the 10-year Treasury security this week. An inverted yield curve has historically been a reliable indicator of a looming recession. Topic of the Week: Collapse Goes the Commodities The Commodity Research Bureau's All Commodities Index ended Thursday down 1.9% over the week, while Bloomberg's measure slid 1.6% over the same period. The slide has been broad-based, with major declines in products stretching from copper to soybean oil. Read the full report

EUR/USD - 1.0169 Euro's selloff below May's 5-year low of 1.0350 to 1.0163 Wed and yesterday's break there to a fresh 20-year bottom of 1.0145 in New York on continued safe-haven usd buying suggests price would head to 1.0100/05, loss of momentum may keep price above projected 1.0075/80 support today. On the upside, only a daily close above 1.0236 confirms a temporary low is in place and risks stronger retracement to 1.0271/76. Data to be released on Friday: Japan all household spending, current account, trade balance, eco watchers current, eco watchers outlook. France current account, trade balance, imports, exports, Italy industrial output. US non-farm payrolls, private payrolls, unemployment rate, average weekly earnings, wholesale inventories, wholesale sales, Canada employment change and unemployment rate.

The US labour market seems to be letting off steam. Indicators ahead of official employment statistics point to a cooling of the market. New weekly jobless claims data showed an increase to 235k against expectations of 230k and 231k a week earlier. The upward trend has been in place for the last three months after touching lows of 168k.  The open job vacancy figures for May are mainly in the same way. Their decline in the last six months from the historic highs should not be construed as a deterioration in the economy. However, the current volume of applications and a slight decrease in open job vacancies are more likely to indicate a recovery from workers who have started to change jobs more actively. Perhaps they needed time to refresh their skills. If we are right, Friday’s June data release could prove strong. Employment growth is expected to slow from 390K to 275k and wage growth to 5% y/y. Significantly higher data would indicate a labour market rotation. In this case, the 20-year highs for the Dollar look justified, and there remains further upside potential on expectations of further aggressive tightening from the Fed.  If the rate of new job gains continues to slow down, however, this would be an extremely negative signal that could halt the Dollar’s rally. 

EUR/USD tumbled to a fresh two-decade low and was pressured by a combination of factors. The energy crisis in Europe continued furling recession fears and weighed on the shared currency. The USD prolonged its recent bullish run and further contributed to the pair’s sharp downfall. The EUR/USD pair witnessed heavy selling for the second successive day on Wednesday, marking the fifth day of a downfall in the previous seven and plunged to a fresh decade low. Recession fears remain the central theme in the markets, which, along with the energy crisis in Europe, cast a shadow over the region's economic outlook. This, in turn, continued undermining the shared currency, further pressured by softer domestic data. The Eurozone Retail Sales posted a modest 0.2% increase in May and German Factory Orders fell 3.1% during the reported month. Apart from this, strong follow-through US dollar buying exerted additional downward pressure on the major.  Against the backdrop of the worsening global economic outlook, aggressive Fed rate hike expectations assisted the safe-haven USD in prolonging its recent bullish run. The prospects for a faster policy tightening by the Fed were reaffirmed by the unsurprisingly hawkish minutes of the June 14-15 FOMC meeting. Policymakers emphasized the need to fight inflation even if it meant slowing an economy and indicated that another 50 or 75 bps rate hike is likely at the July meeting. This followed the release of better-than-expected US data on the services sector and the JOLTS Job Openings report. Adding to this, a goodish rebound in the US Treasury bond yields further boosted the buck. The combination of factors contributed to the EUR/USD pair's decline, taking along some trading stops near the 1.0200 round-figure mark. Overstretched oscillators on short-term charts helped spot prices to find some support ahead of the 1.0150 region. Furthermore, a slight recovery in the risk sentiment held back the USD bulls from placing fresh bets and provided a modest lift to the major during the Asian session on Thursday. Traders now look forward to the German May Industrial Production figures for some impetus ahead of the  US Weekly Initial Jobless Claims. The focus, however, would remain on the closely-watched US NFP report on Friday. Technical outlook From a technical perspective, the overnight swing low, around the 1.0160 region, now seems to act as a pivotal point, below which spot prices could extend the fall towards the 1.0100 mark. Some follow-through selling would make the EUR/USD pair vulnerable to challenging the parity mark in the near term. On the flip side, the attempted recovery move is more likely to confront stiff resistance near the 1.0275-1.0280 region. This is closely followed by the 1.0300 round figure, which if cleared should lift the EUR/USD pair towards the 1.0350 support breakpoint, now turned resistance. Sustained strength beyond could trigger a short-covering move and allow bulls to reclaim the 1.0400 mark, though the momentum runs the risk of fizzling out rather quickly.

Summary The message from the June ISM report is that service activity is cooling rather than buckling. Business activity rose during the month and while new orders declined, the index remains above the 50-threshold designating expansion from contraction. Service-providers continue to contend with an array of supply issues, which are limiting capacity and keeping the heat turned up on prices. Source: Institute for Supply Management and Wells Fargo Economics Read the full report

FOMC will release the minutes of the June policy meeting on Wednesday, July 6. Markets have nearly fully priced in another 75 basis points rate hike in July. Investors will pay close attention to discussions around the September rate decision. The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of six major currencies, surged above 106.00 and reached its highest level in nearly two decades on Tuesday. The widening policy divergence between the US Federal Reserve and other major central banks, especially the European Central Bank, continues to boost the dollar. Additionally, the currency capitalizes on safe-haven flows with investors growing increasingly worried about a global recession. The US Federal Reserve will release the minutes of its June meeting, at which it decided to hike the policy rate by 75 basis points (bps), on Wednesday, July 6.  Neutral scenario The CME Group FedWatch Tool shows that markets are pricing in a 93% probability of another 75 bps rate increase in July. Hence, it would be surprising to see a market reaction in case the Fed’s publication confirms such a policy move later in the month. Cleveland Fed President Loretta Mester, San Francisco Fed President Mary Daly and Fed Governor Michelle Bowman are among Fed officials who openly said that they would support a 75 bps rate hike in July. Additionally, the Commodity Futures Trading Commission’s (CFTC) latest Commitments of Traders (COT) report showed that net long dollar index positions declined last week after having climbed to their strongest levels in early June. Hence, a “buy the rumour sell the fact” market action could cause the DXY to stage a technical correction. Moreover, the index remains technically overbought following Tuesday’s impressive rally.   Hawkish scenario Currently, there is a more-than-80% chance of a 50 bps rate hike in September. This market positioning suggests that there is room for a hawkish surprise in case the minutes reveal that policymakers are willing to consider one more 75 bps hike in September if they don’t see any signs of inflationary pressures easing until then. In that scenario, the benchmark 10-year US Treasury bond yield, which fell by nearly 10% in the last two weeks, could regain traction and help the dollar preserve its strength.  The Fed’s Summary of Economic Projections, the so-called dot plot, showed the median view amongst policymakers is that interest rates will end 2022 at 3.4%, well up from 1.9% in March’s dot plot. Currently, the federal funds rate is 1.5%-1.75%, leaving room for a total of 175 bps hikes in the last four meetings of the year. Two more 75 bps rate hikes in July and September could open the door for the policy rate to come closer to 4% toward the end of the year unless the Fed unexpectedly decides to pause rate increases. Dovish scenario If the minutes unveil that policymakers refrain from committing to a specific size of a rate hike after July and want to see how the economy and the inflation outlook develops, this could be seen as a dovish tone and trigger a dollar selloff. It’s worth noting that the latest PMI surveys from the US displayed that the business activity in the private sector lost significant growth momentum in June. Market participants could start pricing in a less aggressive tightening stance in the last quarter of the year if they see that policymakers are worried about tipping the economy into recession. Conclusion Investors are trying to figure out whether or not the Fed will continue to sacrifice growth to battle inflation. Since a 75 bps rate hike in July is nearly fully priced in, the minutes of the June policy meeting will be looked upon for fresh clues regarding the policy stance in the fourth quarter. Unless investors are convinced that another 75 bps hike in September is more likely than not, the DXY could find it difficult to push higher and make a downward correction. Nevertheless, with the greenback holding its status as a safe haven, a Fed-inspired dollar selloff should remain short-lived.   

A combination of factors dragged EUR/USD to its lowest level since December 2002 on Tuesday. A further rise in gas prices fueled recession fears and weighed heavily on the shared currency. Aggressive USD buying also contributed to the selling bias and confirmed a fresh bearish break. The EUR/USD pair plunged to its weakest level since December 2002 on Tuesday, and the steep intraday decline was sponsored by a combination of factors. The shared currency was pressured by a big jump in natural gas prices, which could drag the Eurozone economy faster and deeper into recession. Moreover, the risk of gas shortages that could disrupt industrial activity across the region if Russia cuts off supplies forced investors to trim ECB tightening bets. This comes on the back of German Bundesbank chief Joachim Nagel's caution on Monday against the use of the anti-fragmentation tool to shield highly indebted countries from surging borrowing rates. Apart from this, a blowout US dollar rally further contributed to the pair's overnight slump. The Federal Reserve’s non-stop chatter about rate hikes to curb soaring inflation continued lending support to the USD. Apart from this, the prevalent risk-off environment lifted the safe-haven buck to a fresh two-decade high. The market sentiment remains fragile amid concerns that rapidly rising interest rates and tightening financial conditions would challenge global economic growth. Apart from this, the ongoing Russia-Ukraine war and the COVID-19 outbreak in China have been fueling recession fears. This, in turn, tempered investors' appetite for perceived riskier assets, evident from a weaker tone around the equity markets. Meanwhile, the USD bulls seemed unaffected by the recent slump in the US Treasury bond yields. That said, extremely overstretched conditions forced the USD bulls to take a brief pause and helped limit any further losses for the EUR/USD pair, at least for the time being. Traders also seemed reluctant to place aggressive bets. They preferred to wait on the sidelines ahead of the FOMC monetary policy meeting minutes, scheduled to be released later during the US session this Wednesday. The minutes would be scrutinized for fresh clues about the Fed's policy tightening path. Apart from this, the US monthly jobs report (NFP), due on Friday, will influence the near-term USD price dynamics and provide a fresh directional impetus to the major. Nevertheless, the fundamental backdrop supports prospects for an extension of the well-established bearish trend. Technical outlook From a technical perspective, the convincing overnight breakdown through the 1.0350 horizontal support adds credence to the negative outlook. That said, RSI (14) on the daily chart has moved on the verge of breaking into the oversold territory and makes it prudent to wait for some near-term consolidation or modest rebound before the next leg down. Hence, any subsequent decline will likely find some support near the July 2002 swing high, around the 1.0200 round-figure mark. Some follow-through selling, however, would be seen as a fresh trigger for bearish traders and pave the way for additional losses. The EUR/USD pair would then turn vulnerable to challenge the parity mark. Conversely, any meaningful recovery attempted might confront stiff resistance and attract fresh selling near the 1.0300 round-figure mark. This, in turn, should cap the EUR/USD pair near the 1.0350 support breakpoint, now turned resistance, which seems to act as a pivotal point. Sustained strength beyond could trigger a short-covering move and allow bulls to reclaim the 1.0400 mark, though the momentum runs the risk of fizzling out rather quickly.

A recession has started, but what will it look like? Nonfarm Payrolls and Employment Levels from BLS, chart by Mish Despite fantasy soft landing theories by the Fed, president Biden, and Treasury Secretary Janet Yellen, a Recession Has Clearly Started Some say it's too early to make the call and jobs are too strong. Others say it takes two quarters of negative GDP. However, it doesn't take two quarters of negative GDP. The NBER is the official arbiter of recessions and the committee looks at a variety of factors.  The NBER's definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February 2020 peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should be classified as a recession. Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dates? A: Most of the recessions identified by our procedures do consist of two or more consecutive quarters of declining real GDP, but not all of them. In 2001, for example, the recession did not include two consecutive quarters of decline in real GDP. In the recession from the peak in December 2007 to the trough in June 2009, real GDP declined in the first, third, and fourth quarters of 2008 and in the first and second quarters of 2009. Real GDI declined for the final three quarters of 2001 and for five of the six quarters in the 2007–2009 recession. In 2001, GDP didn’t contract for two consecutive quarters, but the NBER labeled it a recession anyway. In 2020, the recession was over in two months. Expect Minimal Rise in Unemployment Jobs are a lagging indicator but there are many reasons to expect a minimal rise in unemployment.  The lead chart offers a clue why. The economy still has not recovered all of the jobs lost from the 2020 recession.  While technology is shedding jobs, the leisure and hospitality sector still begs for employees.  Meanwhile, the potential for Boomers to retire is very high and rising.  Employment Levels in Retirement Age Groups  Age 60+ Employment  In 2022: 22.09 Million In 2008: 13.46 Million In 1999: 8.22 Million In 1981: 7.21 Million   There are over 22 million people age 60 or over who are still working. We have never seen anything like this before, so don't expect prior recessions to be a model for this one. Millions of these people will retire. Employment may drop substantially when these boomers and Gen X employees retire, but falling employment and rising unemployment are not the same thing in the Fed's eyes. Rise in Unemployment Rate  Rise in Unemployment Rate Key Points  In 12 previous recessions, the lowest rise in unemployment was in 1990 and 2001, 1.1 percent each.  The highest jump was 8.2 percent in 2020 and that was undoubtedly understated.  Given the pending levels of retirement and the incomplete jobs recovery from the 2020 recession, I expect this to be a very weak recession in terms of rising unemployment.  Recession Duration in Months  Recession Duration Key Points The 2020 recession only lasted 2 months. The 2008 recession lasted 18 months.   Expect Shallow and Long I see no use in averaging the above recession jambalaya. Instead, I expect the opposite of the 2020 recession.  2020 was very short and unprecedented steep. 2022 will be the opposite, perhaps unprecedented shallow from an unemployment standpoint. Fed's Hands Are Tied The Jobs data speaks for itself. That is half of the Fed's mandate. If jobs stay relatively strong as I expect, the Fed will have met that half of its mandate. The Fed's other mandate is price stability. Everyone on the planet knows the Fed flunked. It gets grade F. The Fed does not want another grade F. It will err on the side of caution unless there is a credit event or a collapse in jobs. Powell: "We understand better how little we understand about inflation” Let's review Powell's comments at the June 29 ECB economic forum: Powell: "We understand better how little we understand about inflation” Powell: “There’s a clock running here. The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime. Our job is literally to prevent that from happening, and we will prevent that...