Sahm Rule inventor does not believe that the Fed requires an emergency rate drop.
Considering recent weaker-than-expected economic indicators, the U.S. Federal Reserve does not need to issue an emergency rate cut, argues Claudia Sahm, chief economist at New Century Advisors.
"We do not require an emergency cut," Sahm said in an interview with CNBC's "Street Signs Asia." "From what we happen to know right now, I don't think that there's any situation that will make that necessary."
She added that the Fed must "back off" its tight monetary policy and that there is a strong case for a 50 basis point reduction.
Sahm cautioned the central bank to exercise caution and not wait too long before reducing rates, even though the Fed is purposefully using interest rates to push the American economy lower.
This is because changes in interest rates take time to trickle down to the economy. "The optimal scenario is if they begin easing gradually and beforehand. Thus, the risk [of a recession] is what I discuss, and I still firmly believe that this risk exists," the speaker stated.
The three-month moving average of the unemployment rate in the United States is at least fifty percent higher than the 12-month low. This is known as the Sahm Rule, and it was first proposed by economist Sahm.
The three-month average fluctuation of the rate of joblessness in the United States is at least 0.5 percentage points higher than the 12-month low.
This is known as the Sahm Rule, and it was first proposed by economist Sahm. Early this week, fears of a recession were stoked by lower-than-expected manufacturing data and higher-than-expected unemployment. This led to a sell-off in global markets.
In July, the employment rate in the United States was 4.3%, above the 0.5 percentage point barrier. Since its introduction in 1953, the indicator has consistently shown signs of a recession, earning a reputation for being straightforward and fast to reveal the start of one.
Sahm responded that there is "no guarantee" as to where the economy will go next when asked if the US economy is in a recession. It could enter a recession if there is additional weakening.
"The the job market needs to stabilize. Growth needs to level off. This weakening is a serious issue, especially if the trend that July showed us continues to deteriorate.
