Claudia Sahm, the economist behind the Sahm Rule, praised the Chair of the Federal Reserve Jerome Powell‘s speech on X. According to Sahm, Powell emphasized the Fed’s dual mandate and indicated a significant shift in labor market policy.
What Happened: Sahm highlighted a notable quote from Powell’s speech: “We do not seek or welcome further cooling in labor market conditions.” She praised this stance saying, “It’s truly remarkable,” emphasizing the importance of the Fed’s dual mandate.
Sahm noted that she spent the weekend listening to Powell’s first six Jackson Hole speeches repeatedly. She observed that some details from the latest speech might not hold up well over time, acknowledging that we are not experiencing smooth sailing.
She highlighted the significant commitment involved, pointed out that inflation remains above target, and indicated that while we are not in a crisis, the Fed is expected to ease its stance.
On Friday, Powell addressed an annual gathering of global policymakers and economists in Jackson Hole, Wyoming. During his speech, Powell suggested that the U.S. central bank is likely to reduce interest rates in September.
Powell stated, “The time has come for policy to adjust.” He further added that the direction of travel is clear, but the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.
Why It Matters: Powell’s remarks come at a critical juncture for the U.S. economy. In the address at the Jackson Hole Symposium, Powell stated, “My confidence has grown that inflation is on a sustainable path back to 2 percent.” This statement underscores the Fed’s growing optimism about controlling inflation, a key factor in their decision to consider rate cuts.
The potential rate cuts are also significant in light of recent economic data. The U.S. Labor Department reported a rise in the unemployment rate to 4.3% in July, the highest since October 2021. This data aligns with Powell’s observation that the labor market is showing “unmistakable” signs of cooling.
Economist Sahm has been vocal about the importance of discussing the labor market in the context of Federal Reserve policy. Amid growing debate over the Sahm Rule's application, earlier, Sahm defended its relevance, stating, “This conversation [about the labor market] is one that we absolutely should be having, and the Fed absolutely should be having too.”
Despite the potential for rate cuts, some analysts remain skeptical about their effectiveness in averting a recession. Garry Evans, chief strategist of global asset allocation at BCA Research, warned of an impending U.S. recession, asserting that anticipated Fed rate cuts will not avert it. Evans pointed to signs of a slowing economy, including a deteriorating labor market.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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