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Despite the sleepy summertime doldrums, the economic data calendar continues to heat up.

Following last Friday's monthly job numbers, investors will feast on the latest Consumer Price Index inflation print this Thursday, teed up by testimony from Fed Chair Jerome Powell, who delivers his semiannual Humphrey-Hawkins testimony to the Senate on Tuesday and to the House on Wednesday.

The "data-dependent" Powell will no doubt do his best not to surprise investors when it comes to assessing the Fed's twin mandates of maximum employment and stable prices.

But the latest economic data is ratcheting up support for the Fed's first rate cut since 2019 — especially after some surprise weakness Friday in the unemployment rate.

Investors can reasonably expect the Fed to stand pat at its July meeting in three weeks. But the odds of a September rate cut have been increasing, now standing at 72% — up from a 47% chance a month ago.

Last week at a European Central Bank event in Portugal, Powell was asked point blank if the Fed might cut in September. Powell declined to answer, noting the Fed could afford to be patient given how the strong job market is slowing down only gradually.

But on Friday — only a few days after that event — the Bureau of Labor Statistics reported that the June unemployment rate had ticked up to 4.1%, surprising Wall Street, which expected it to hold at 4.0%.

It's a small difference and only one data point. But the unemployment rate is getting tantalizingly close to triggering a well-respected recession indicator called the Sahm Rule.

Briefly stated, the Sahm Rule warns the US economy is in the beginning stages of recession if the unemployment rate's three-month average has risen half a percentage point or more from the average's low over the prior twelve months. It's designed to detect an acceleration of job losses, and it successfully predicted the prior nine US recessions going back to 1970.

As of June, the reading is now 0.43 ppts. By the September meeting, there will be two more employment releases (for July and August). If either one of those prints is 4.2% or higher for the unemployment rate, the half-a-percent threshold for the Sahm Rule will have been met, according to Yahoo Finance calculations.

Even if the Sahm Rule triggers, the Fed has plenty of cover to do nothing — especially in an election year.

On top of that, Powell is on record recently saying he still wants to see more evidence that inflation is sustainably moving down to its 2% target. So if Thursday's headline CPI numbers jump substantially, you can bet that September rate cut odds would likely plummet to near zero.

Claudia Sahm, the former Fed economist who created the eponymously named rule, herself has expressed doubts about the rule's effectiveness in a world that's still normalizing from record unemployment during the pandemic.

But Sahm herself has been pressing for the Fed to move soon. In a recent interview with CNBC, she said that recession is a real risk, though it's not her base case.

“The worst possible outcome at this point is for the Fed to cause an unnecessary recession,” she said.

Depending on the job numbers that drop in a month or two, we could easily face a barrage of headlines proclaiming the recession is nigh as the focus shifts from inflation and stable prices to jobs and maximum employment. Just like with airplanes, the risks for an economy seem to increase right before landing.

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