Claudia Sahm: No Immediate Need for Emergency Rate Cut Despite Recession Risks

Claudia Sahm, Chief Economist at New Century Advisors, stated that there is no immediate need for the U.S. Federal Reserve to implement an emergency rate cut despite recent weaker-than-expected economic data. In an interview with CNBC’s “Street Signs Asia,” Sahm emphasized, “Based on current information, an emergency cut is not necessary.” However, she acknowledged the case for a potential 50 basis point cut, suggesting that the Federal Reserve should consider easing its restrictive monetary policy.

Sahm highlighted the importance of the Fed closely monitoring the economy, cautioning that while the central bank is deliberately applying downward pressure through interest rates, it must act before it’s too late to mitigate potential economic downturns. “The optimal approach would be a gradual easing ahead of a recession risk,” Sahm explained, reaffirming her belief in the significant risk of a recession.

Known for introducing the “Sahm Rule,” which indicates the onset of a recession when the three-month moving average of the U.S. unemployment rate rises by at least half a percentage point above its 12-month low, Sahm pointed to current economic indicators as a cause for concern. July’s U.S. unemployment rate of 4.3%, surpassing the 0.5 percentage point threshold, has fueled recession fears, alongside disappointing manufacturing data and elevated unemployment levels, triggering a global market rout earlier this week.

While Sahm does not believe the U.S. is currently in a recession, she cautioned that further economic weakening could lead to one. She underscored the need for the labor market to stabilize and for economic growth to level out, particularly if July’s trends persist.