'Mother' recession indicator Sahm Rule: The Fed is 'playing with fire' by not cutting interest rates right now.

According to economist Claudia Sahm, the US Federal Reserve's (Fed) failure to cut interest rates right now risks weakening the economy.

Claudia Sahm is the author of a time-tested rule for determining when a recession occurs. She points out that when the three-month average unemployment rate is more than half a percentage point above the 12-month low, the economy is in recession.

As the unemployment rate has risen in recent months, the “Sahm Rule” has left Wall Street buzzing that the strong labor market is starting to show cracks and bring with it potential trouble. . That has created speculation about when the Fed will start cutting interest rates.

Ms. Sahm, chief economist at New Century Advisors, said the central bank is running a big risk by not gradually cutting interest rates now. A potential recession could force policymakers to act more aggressively.

The economist noted her indicators do not yet indicate a recession, but it is a risk. “I don't know what they're waiting for,” she said, noting that the worst possible scenario is that the Fed creates an unnecessary recession.

She commented that inflation has decreased a lot. Although the target has not been reached, inflation is moving in the right direction, while unemployment is moving in the wrong direction. “The closer we get to the danger zone in the labor market, the farther we get from the danger zone of inflation. So what the Fed needs to do is quite clear." - CNBC

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