What is the Sahm Rule that predicts recessions and is worrying Wall Street?

At a time when economists have apprehended that the US economy is staring at an imminent recession, former Federal Reserve economist Claudia Sahm has rejected it, reports the 'Fortune'. She has said that though the Sahm rule is close to triggering, a recession is not imminent. Named after Claudia Sahm, the Sahm rule says that a recession appears on the horizon after the unemployment rate’s current three-month moving average exceeds the lowest three-month moving average of the trailing 12 months by half a percentage point or more. According to the Federal Reserve, this reading is 0.43% points at present.

Claudia Sahm: No imminent US Recession

The former Federal Reserve economist has also pointed out there are certain mitigating factors like the pressure on the U.S. labor market with the arrival of a large number of immigrants and it has inflated the official level of unemployment. This might have distorted the data leading to the wrong conclusion.

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Claudia Sahm: Unemployment data overstated

Claudia Sahm also wrote in an article that the Sahm rule has wrongly overstated the labor market’s weakening due to the unexpected shifts in labor supply caused by the pandemic and immigration. It is interesting to note that the household survey forms the basis of the official unemployment rate. But the markets come to zero on the hard data of jobs created or reduced by employers on the first Friday of every month when the U.S. Bureau of Labor Statistics publishes job numbers.

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Will the Fed Reserve slash benchmark rates?

Federal Reserve's policymaking body, the FOMC, will meet for two days beginning Wednesday. Few economists are expecting a cut in the benchmark rate banks charge.

FAQs

Why has former Federal Reserve economist Claudia Sahm rejected
US recession threat?
Former Federal Reserve economist Claudia Sahm has rejected imminent US recession, pointing out mitigating factors like the pressure on the U.S. labor market with the arrival of a large number of immigrants which has inflated the official level of unemployment.

Will the Federal Reserve cut benchmark rates?
Federal Reserve's policymaking body, the FOMC, will meet for two days beginning Wednesday. Few economists are expecting a cut in the benchmark rate banks charge.