financetom
Economy
financetom
/
Economy
/
Sahm rule creator sees 50-bps Fed rate cut on labor market worries
News World Market Environment Technology Personal Finance Politics Retail Business Economy Cryptocurrency Forex Stocks Market Commodities
Sahm rule creator sees 50-bps Fed rate cut on labor market worries
Sep 17, 2024 11:19 AM

(Reuters) - The U.S. economy is not in a recession but labor-market weakness might worry the Federal Reserve enough to cut interest rates by 50 basis points on Wednesday, former Fed economist Claudia Sahm said.

"The likely path for the Fed is for the 50-(bps) cut this time, really adhering to the principles of data-dependence," Sahm told the Reuters Global Markets Forum on Tuesday.

"There was quite a bit of labor-market data, all in one direction, and it was not good. This is a Fed that has been very much behind the maximum-employment side of the dual mandate," Sahm said.

The Fed acts according to a dual mandate of price stability and maximum sustainable employment.

Markets are pricing in a 63% chance of a 50-bps rate cut by the Fed on Wednesday and a 37% chance of a 25-bps cut.

Sahm is the creator of the recession indicator, the "Sahm rule", which has until now accurately predicted every U.S. recession since 1970. The rule indicated a recession last month after data showed U.S. jobless rate reached 4.3% in July.

Sahm said, however, that the U.S. is not actually in recession and the rule failed to account for the current unusual economic cycle.

"The Sahm rule broke in the sense that it turned on outside of a recession," said Sahm, who is currently chief economist at New Century Advisors, an investment management firm.

The Sahm rule is a recession indicator, not a forecast tool, she said.

The central bank will also release its updated Summary of Economic Projections on Wednesday.

Sahm worries they might cause concern in the markets as most Fed officials will write down a long-term path for interest rates to be lower than some expect.

She expected the Fed's rate cut and new projections to stem from recent inflation data and recognition of a softer labor market.

(Join GMF on LSEG Messenger for live interviews: )

Comments
Welcome to financetom comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Related Articles >
Polish president says NATO members should spend 3% of GDP on defence
Polish president says NATO members should spend 3% of GDP on defence
Mar 11, 2024
WARSAW (Reuters) - Poland's president will propose during a visit to the United States that NATO members spend 3% of gross domestic product (GDP) on defence, he said on Monday. Russia's invasion of Ukraine in 2022 has made defence a top priority for members of NATO's eastern flank, and Poland is spending around 4% of GDP on boosting its armed...
US Dollar Falls Early Monday, Focus on Inflation, Retail Sales Data
US Dollar Falls Early Monday, Focus on Inflation, Retail Sales Data
Mar 11, 2024
07:58 AM EDT, 03/11/2024 (MT Newswires) -- The US dollar fell against its major trading partners early Monday, except for a small gain against the pound, as markets prepare for a busy schedule of key economic data releases this week during the absence of appearances by Federal Reserve officials. The week starts off light Monday, with only state unemployment data...
NY Fed: Consumer outlook on longer-term inflation hit snag in February
NY Fed: Consumer outlook on longer-term inflation hit snag in February
Mar 11, 2024
NEW YORK (Reuters) - The public's expectations around the longer-run trajectory of inflation deteriorated in February, a report from the Federal Reserve Bank of New York said Monday. While inflation a year from now was seen holding steady at 3%, respondents to the bank's latest Survey of Consumer Expectations said that they see inflation three years from now moving to...
January Unemployment Rate Gains Largest in Connecticut, Rhode Island, Washington
January Unemployment Rate Gains Largest in Connecticut, Rhode Island, Washington
Mar 11, 2024
10:17 AM EDT, 03/11/2024 (MT Newswires) -- State-level data released by the Bureau of Labor Statistics Monday showed the unemployment rate rose in four states in January, fell in two states and held steady elsewhere. The largest unemployment rate gains were in Connecticut, Rhode Island, and Washington, where it rose by 0.2 percentage point in each state. North Dakota had...
Copyright 2023-2025 - www.financetom.com All Rights Reserved