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Former Federal Reserve economist Claudia Sahm said that while the US isn\u2019t yet in a recession, it\u2019s \u201cuncomfortably close,\u201d and predicted central bank policymakers may recalibrate their approach to take account of increasing risks.<\/p>\n
\u201cThis increase in the unemployment rate has been, in the past, consistent with \u2018early in recession,\u2019\u201d Sahm said on Bloomberg Television\u2019s\u00a0Bloomberg Surveillance<\/em>\u00a0program, referring to the unexpected climb in the jobless rate seen in Friday\u2019s July employment report. \u201cWe might not be there, but we\u2019re getting uncomfortably close to that situation.\u201d<\/p>\n The report showed US hiring slowed markedly while the unemployment rate rose to 4.3%, causing its three-month moving average to exceed the 12-month low by half a percentage point, and triggering the so-called Sahm Rule. Sahm came up with the statistical observation to help guide fiscal policymakers on when they should stimulate to counter a recession.<\/p>\n \u201cWe do come into this in a position of strength, broadly speaking,\u201d Sahm said. \u201cIf we look at all of what we know about the US economy right now, it is very unlikely that we are in a recession.\u201d<\/p>\n Fed Chair Jerome Powell last Wednesday said, ahead of Friday\u2019s release, that the \u201ctotal scope\u201d of data to that point had indicated a \u201cnormalizing\u201d labor market. Indicators for the first half of the year were \u201cnot signaling a weak economy,\u201d he said, pointing to a low level of layoffs, \u201csolid\u201d spending and a pick-up in investment.<\/p>\n With financial markets plunging, and \u201cthe panic word\u201d looming large for many, Sahm said it would be inappropriate for the US central bank to act immediately in response to rising risks. \u201cCalm is important at a moment like this.\u201d<\/p>\n \u201cThe fact that the Federal Reserve is slow moving and deliberate, it\u2019s a good thing, right? The last thing we need is them joining into that\u201d emotional energy, she said. At the same time, Powell and his colleagues may take account of shifts in the economy and in markets, she said.<\/p>\n The S&P 500 Index was down over 3% as of 10:30 a.m. in New York, and is on track for it worst session in about two years.<\/p>\n Sahm, chief economist at New Century Advisors, said the Fed is \u201cvery deliberate. It can be very slow moving. But when, when the facts change, and it gets its mind around it, it will move and it will do what it has to do.\u201d<\/p>\n With the Fed\u2019s benchmark currently in a 5.25% to 5.5% target range, policymakers \u201care in a position right now where they have the ability to do quite a bit,\u201d Sahm said.<\/p>\n<\/div>\n\u2018Panic Word\u2019<\/h3>\n
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