Economist Claudia Sahm, creator of the eponymous Sahm Rule, has responded to recent criticism of her economic indicator, asserting its importance in discussions about the U.S. labor market and Federal Reserve policy.
What Happened: Amid growing debate over the rule’s application and interpretation, Sahm took to social media platform X to defend its relevance. “This conversation [about the labor market] is one that we absolutely should be having, and the Fed absolutely should be having too,” she wrote, adding, “No apologies.”
The Sahm Rule, which aims to identify the onset of recessions, has faced scrutiny in recent weeks, with some experts claiming it’s been taken out of context or overhyped. Notably, Federal Reserve Chair Jerome Powell expressed skepticism, suggesting the rule should not necessarily be relied upon as a definitive economic indicator.
In response to the criticism, Sahm addressed the controversy in an interview with CNBC Overtime. She argued that many people, including some prominent figures, have misunderstood the metric and its intended application.
The ongoing debate highlights the challenges in interpreting economic indicators and forecasting recessions, especially in the current complex economic landscape. As discussions continue, Sahm remains firm in her belief that the rule provides valuable insights for policymakers and economists alike.
Why It Matters: The debate over the Sahm Rule has intensified amid recent market instability. Last week, Sahm reiterated in an interview that she does not believe the U.S. is in a recession, despite the economic uncertainty. She emphasized that traditional indicators might not accurately reflect the current economic cycle.
Earlier, in July, Sahm had challenged Powell’s stance on the Sahm Rule, calling for immediate action to address inflation. She argued that the Federal Reserve should consider easing policies to combat rising inflation.
Powell referred to the Sahm Rule as a “statistical regularity,” suggesting that it does not necessarily predict future economic conditions. He emphasized that the rule should not be seen as an absolute economic law.
Despite her defense of the Sahm Rule, Sahm acknowledged that the risk of a recession is elevated. She suggested that the Federal Reserve should consider interest rate cuts to mitigate these risks.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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