Odd Lots
Lots More With Claudia Sahm on What the Sahm Rule Is Saying Now
Aug 16, 2024
Claudia Sahm, Chief Economist at New Century Advisors and creator of the Sahm Rule, dives into the complexities of current economic signals. She explains how the Sahm Rule suggests a recession might be looming due to rising unemployment, yet questions its reliability in today's unique circumstances. The discussion also explores the Federal Reserve's response and the intricate relationship between labor market trends and monetary policy. With an eye on fiscal strategies, they ponder the implications of these economic signals as election year dynamics unfold.
25:23
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Quick takeaways
- Claudia Sahm highlights that the Sahm Rule may not be as reliable in the current economic cycle due to unique pandemic-related shifts.
- Policymakers must carefully analyze the labor market dynamics before making decisions, as rising unemployment might not directly indicate recession risks.
Deep dives
Understanding the Sommer Rule
The Sommer Rule serves as an indicator for initiating fiscal relief during economic downturns by determining that a recession is likely when the unemployment rate exceeds a certain threshold. Specifically, it triggers when the three-month moving average of unemployment rises 0.5% above its lowest point in the previous year. The formula's simplicity aims to provide quick guidance for policy actions such as stimulus measures. However, while the rule outlines a historical pattern, its rigid structure may overlook subtle shifts in the economic landscape that could inform a more accurate analysis.
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