Sahm rule proves recession is likely
Cox 24 (Jeff Cox, CNBC, “The Fed is ‘playing with fire’ by not cutting rates, says creator of ‘Sahm Rule’ recession indicator” 6/18/2024. Accessed 6/19/2024. https://www.cnbc.com/2024/06/18/economist-sahm-who-devised-recession-rule-says-the-fed-is-playing-with-fire-.html) wtk
The Federal Reserve is risking tipping the economy into contraction by not cutting interest rates now, according to the author of a time-tested rule for when recessions happen.
Economist Claudia Sahm has shown that when the unemployment rate’s three-month average is half a percentage point higher than its 12-month low, the economy is in recession.
As the jobless level has ticked up in recent months, the “Sahm Rule” has generated increasing talk on Wall Street that what has been a strong labor market is showing cracks and pointing to potential trouble ahead. That in turn has generated speculation over when the Fed finally will start reducing interest rates.
Sahm, chief economist at New Century Advisors, said the central bank is taking a big risk by not moving now with gradual cuts: By not taking action, the Fed risks the Sahm Rule kicking in and, with it, a recession that potentially could force policymakers to take more drastic action.