Claudia Sahm, the economist who developed the Sahm Rule, has stated that the U.S. is not currently in a recession. However, she has warned of an increased risk of recession, advocating for potential interest rate cuts by the Federal Reserve.
What Happened: Sahm, in a post on X on Wednesday, contradicted the recessionary signal of the Sahm Rule, which she developed. She emphasized that the risk of a recession is high, which could necessitate the Federal Reserve to consider interest rate cuts.
“The US is not in a recession, despite the Sahm Rule indicator bearing my name saying that it is. That said, the risk of a recession is elevated, strengthening the case for the US Federal Reserve to cut interest rates,” Sahm wrote on X, quoting an excerpt of her opinion piece on Bloomberg.
Sahm further explained that the current unemployment rate, although low at 4.3%, is not a safeguard against a recession. However, she pointed out that the recent rise in the unemployment rate aligns with the patterns observed in previous recessions.
She also highlighted that the Sahm Rule, which uses changes in the unemployment rate as an early warning sign of a recession, was designed to expedite the identification of a recession and trigger fiscal policies such as stimulus checks.
Why It Matters: Sahm had already refuted claims of a recession, emphasizing the unusual nature of the current economic cycle. She mentioned that traditional indicators might not accurately reflect the situation.
Adding to the complexity, the weak July jobs report released last week, caused market turmoil, with the SPDR S&P 500 ETF Trust SPY experiencing a significant sell-off.
Furthermore, Sahm had challenged Federal Reserve Chair Jerome Powell in July on his stance regarding the Sahm Rule, urging for immediate easing to combat inflation. Her comments came after Powell’s dismissal of the Sahm Rule during a press conference.
Additionally, Nobel Prize-winning economist Paul Krugman had raised concerns about pre-recessionary signals, pointing to the Sahm Rule’s cautionary message.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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