Claudia Sahm, the creator of recession indicator Sahm Rule says, the U.S is very close to recession

Former Federal Reserve economist Claudia Sahm has expressed concerns that while the US isn't currently in a recession, it is alarmingly close. She predicts that central bank policymakers might need to adjust their strategies in response to the increasing risks.

On Bloomberg Television’s Bloomberg Surveillance program, Sahm commented on the unexpected rise in the unemployment rate in July’s employment report, noting that this trend is historically consistent with the early stages of a recession. Although she acknowledged that the US might not be in a recession yet, the situation is precariously close.

The report revealed a significant slowdown in US hiring and an increase in the unemployment rate to 4.3%. This caused the three-month moving average to exceed the 12-month low by half a percentage point, activating the Sahm Rule. Sahm developed this statistical measure to guide fiscal policymakers on when to stimulate the economy to counteract a recession.


Sahm emphasized that the US economy, in a broad sense, is still in a position of strength and it is unlikely that the country is currently in a recession.

Fed going slow

Federal Reserve Chair Jerome Powell, prior to the release of the report, had indicated that the labor market was normalizing, citing low layoffs, solid spending, and an increase in investment as signs of a stable economy.

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Amid financial market turmoil and rising panic, Sahm advised against immediate action by the US central bank, stressing the importance of maintaining calm. She praised the Federal Reserve’s slow and deliberate approach, noting that rapid, emotional reactions would be detrimental. However, she also mentioned that the Fed might need to adjust based on economic and market shifts.

Sahm, now the chief economist at New Century Advisors, highlighted the Fed’s deliberative nature, which can be slow-moving but effective once it adapts to new information. With the Fed’s benchmark interest rate currently between 5.25% and 5.5%, she believes policymakers have considerable flexibility to act if necessary.

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Concerns about a US recession, fueled by the weak July jobs report, dampened traders' confidence on Monday.

What is Sahm Rule?

The Sahm Rule, developed by former Federal Reserve and White House economist Claudia Sahm, signals the onset of a recession when the three-month average unemployment rate rises 0.5 percentage points or more above its lowest point in the past year.

This threshold was surpassed when recent US government data revealed that the unemployment rate had climbed to 4.3 percent, the highest since October 2021. In July, the Sahm Rule reading hit 0.53 points, as reported by the Federal Reserve Bank of St. Louis.