Claudia Sahm Warns Fed: Delayed Rate Cuts Could Spur Unnecessary Recession

In a detailed discussion with Kitco News, Claudia Sahm, founder of Sahm Consulting and chief economist at New Century Advisors, shared her insights on the U.S. economy. Despite rising recession concerns, Sahm emphasized that the current labor market still shows strength, suggesting the economy may not yet be in a recession.

Claudia Sahm on U.S. Economy: Recession Risks Loom, But Labor Market Remains Resilient

During the interview, Claudia Sahm highlighted that while the “Sahm Rule”—an early indicator of recessions—has been triggered, it does not necessarily mean a recession is imminent. Sahm pointed out that other economic indicators, such as consumer spending and job gains, suggest that the U.S. economy continues to expand.

However, she warned that the rising unemployment rate, coupled with increased labor force participation, could signal potential challenges ahead. Sahm further elaborated on the Federal Reserve’s role in navigating the current economic landscape. She critiqued the Fed’s cautious approach to interest rate cuts, arguing that delayed action could lead to an unnecessary recession.

Sahm underscored the importance of balancing inflation control with sustaining employment, advocating for timely rate reductions to alleviate economic pressures. After the latest consumer price index (CPI) report, the market expects the U.S. central bank to slash the rate. Data from CME’s Fedwatch tool shows the market pricing in a 25 to 50 basis points cut.

Despite the uncertainties, Sahm remains cautiously optimistic. She acknowledged the complexities of the labor market and the possibility of future economic revisions. However, she emphasized the need for the Fed and Chair Jerome Powell to remain vigilant and responsive to evolving data, to avoid tipping the economy into a downturn.

Sahm’s interview arrives at a moment when more economists and analysts are bracing for a recession, potentially more severe than a gentle soft landing. The latest earnings reports paint a cautious picture: Airbnb notes that Americans are postponing vacation rentals, Disney reveals its theme parks are grappling with dwindling demand, and Home Depot recently sounded the alarm on reduced consumer spending, pointing out that consumers are holding off on major home projects. Check out the video in its entirety with Claudia Sahm below.

What do you think about Sahm’s interview? Do you expect a U.S. recession? Share your thoughts and opinions about this subject in the comments section below. #Write2Earn