The recent weaker-than-expected economic data in the United States has raised concerns about the need for an emergency rate cut by the U.S. Federal Reserve. However, Claudia Sahm, chief economist at New Century Advisors, has expressed her opinion that an emergency cut may not be necessary at this point in time. She believes that the Fed should consider a more measured approach to monetary policy adjustments.
Sahm suggests that a 50-basis-point cut could be a more appropriate move by the Federal Reserve. She argues that the central bank needs to alleviate the current pressure on the U.S. economy by loosening its monetary policy. While the Fed is deliberately using interest rates to control economic growth, Sahm advises against waiting too long before making necessary adjustments.
One of Sahm’s contributions to economic analysis is the Sahm rule, which identifies the onset of a recession based on specific criteria related to the U.S. unemployment rate. According to this rule, a recession may be indicated when the three-month moving average of the unemployment rate is at least half a percentage point higher than the 12-month low. This rule has proven to be a reliable indicator of economic downturns in the past.
The recent manufacturing numbers and unemployment data have fueled concerns about a potential recession. While the U.S. employment rate stood at 4.3% in July, crossing the 0.5-percentage-point threshold defined by the Sahm rule, it does not necessarily mean that a recession is imminent. Sahm emphasizes the need for stability in the labor market and sustained growth to prevent a further economic decline.
Despite the uncertainty surrounding the U.S. economy, Sahm does not believe that the country is currently in a recession. However, she acknowledges the possibility of a downturn if certain conditions persist. She highlights the importance of monitoring key economic indicators and taking preemptive measures to prevent a potential recession from occurring.
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