##lity. however, it is also important to recognise that small economies will always be more volatile than larger, more diversified economies. given this reality, decision makers in all sectors ( smes, large corporates, households, the government ) should make financial plans on a prudent basis, with sufficient equity and cash buffers to cope with adverse shocks and due risk assessment of investment and consumption plans. finally, let me turn to the consumer protection work of the central bank, which extends to the sme sector. the central bank has consistently recognised the importance of ensuring that 4 / 5 bis central bankers'speeches regulated lenders treat small businesses fairly. a new set of regulations came into effect on 1 july 2016 for all lenders that provide sme credit, except for credit unions, which must comply from 1 january 2017. these regulations provide protections for micro, small and medium - sized enterprises when they are either applying for or already have credit facilities and also for guarantors of sme credit. in summary, the regulations aim to strengthen protection for smes, while also facilitating access to credit, by introducing specific requirements that regulated lenders must comply with such as : giving sme borrowers transparency around the application process ; providing sme borrowers with reasons for declining credit, in writing, that are specific to their application ; providing protections for guarantors of sme credit ; providing smes with the option of an annual meeting to review their credit facilities ; contacting sme borrowers who have been in arrears for 15 working days ; warning sme borrowers if they are in danger of being classified as not co - operating ; and providing sme borrowers with the right of appeal. we have produced a guide for smes on these regulations which is available on our website and i would encourage you all to read this4. isme were a key stakeholder for us in undertaking the development of these regulations and i would like to thank isme for its very constructive engagement in this work and its assistance in circulating our guide to its members. 1 martina lawless ( 2013 ), “ age or size? www. centralbank. ie / publications / documents / 02rt13. pdf determinants of job creation ”. 2 james carroll, paul mooney and conor o ’ toole, “ irish sme investment in economic recovery ”. www. centralbank. ie / publications / documents / qb2 % 202016 % 20irish % 20sme % 20economic

with other supposedly reliable recession rules, such as an inverted yield curve, there is more to forecasting economic outcomes than the relationships between a couple of variables. first, these rules are nothing more than a mechanical, statistical description of past economic outcomes - they do not seek to explain what economic forces drive the relationship between the data, nor are they based on the totality of economic data. all recessions rules do is pick up a correlation between movements in economic data and the dates of recessions or other outcomes. a second point is that, setting aside the unusual circumstances of the 1981 – 82 recession, recessions occur when a major shock hits the economy. 3 in the absence of a big negative shock, an inversion of the yield curve or a triggering of the sahm rule doesn't necessarily mean we are entering a recession. third, recession rules typically pick up demand - driven recessions. but this is not why unemployment is rising now. gdp forecasts for the current quarter all show solid growth, labor market data show lay off rates are stable, and consumer spending is growing at a healthy rate. these data suggest demand is fairly strong. instead, most of the increase in the unemployment rate is from workers entering the labor force and not finding jobs right away. so, the recent rise in the unemployment rate appears to be more of a supply - side - driven phenomenon, not demand driven. and lastly, it should be clear to everyone that many pre - pandemic economic relationships have not proven to be good policy guides post - pandemic. reliance on old lessons from inverted yield curves to predict a recession, a phillips curve to predict inflation, or a flat beveridge curve to predict the movement in the unemployment rate have all led to mistaken economic forecasts. while i don't see the recent data pointing to a recession, i do see some downside risk to employment that i will be watching closely. but at this point, i believe there is substantial evidence that the economy retains the strength and momentum to keep growing, supported by an appropriate loosening of monetary policy. let me now turn to the outlook for inflation. with the labor market cooling, it doesn't surprise me that wage growth has slowed to a pace consistent with the fomc's pricestability goal, and this is supporting ongoing progress toward that objective. the employment cost index grew at an annualized rate of 3. 5 percent from march to june, and the 12 - month change was 3.