Kelly Evans: The first cut is the deepest

Remember yesterday, when yields went below 4% for the first time in six months? Today, they plunged below 3.8%.

Why? A worse-than-expected July jobs report. It wasn't the slowdown in job growth to just 114,000 last month, although that wasn't great. It was the jump in the unemployment rate by two-tenths to 4.3% that really spooked markets. So much for the hope that the rate might drop this time, and break its recent uptrend.

The jump was enough to officially trigger "the Sahm rule." It's the rule-of-thumb developed by economist Claudia Sahm that says when the unemployment rate rises half a point from its cycle low (using a three-month moving average), policymakers should be on high alert that we're heading into a recession. Hence the selloff in stocks and further plunge in global bond yields.

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So, are we actually heading into one? In a twist, Sahm herself isn't so sure. But she is certain the Fed should have cut rates this week, instead of letting them do more damage to the economy. "Waiting two more months...may make it harder to cut gradually and could create unwarranted urgency," she warned on Wednesday.

Which is exactly what is playing out now. The odds of a half-point rate cut in September have now jumped substantially. And the Fed--which was way behind the curve in hiking rates when inflation took off in the first place--is now seen as behind the curve on cuts.

The Fed itself hates doing anything panicky. And this is actually one of the longer gaps between meetings; their next rate move isn't until September 18. Still, they'll have plenty of opportunity to reset expectations with the annual Jackson Hole summit coming up near the end of this month.

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And yet, the Jackson Hole agenda--which, like any big confab's, is set months in advance--reflects earlier concerns that now seem a distant memory: "Reassessing the Effectiveness and Transmission of Monetary Policy." By the time the meeting actually happens, "Assessing the Negative Market Impact of an Intermeeting Cut" would probably be more to the point.