The Federal Reserve does not need an emergency interest rate cut, despite recent weaker-than-expected economic data, according to Claudia Sahm, chief economist at New Century Advisors.
Speaking to CNBC's “Street Signs Asia,” Sam said: “We don't need an emergency cut, and from what we know now, I don't think everything will make that necessary.”
But she said there was a good case for a 50 basis point rate cut, adding that the Fed needed to “undo” its restrictive monetary policy.
While the Federal Reserve is deliberately putting downward pressure on the US economy using interest rates, Sam warned that the central bank needs to be vigilant and not wait too long before cutting rates, as interest rate changes take a long time to work through the economy.
“The best-case scenario is that they start to ease monetary policy gradually, prematurely. So what I'm talking about is the risk of (recession), and I still feel very strongly that that risk is there,” she said.
Sahm was the economist who introduced the so-called Sahm rule, which states that the initial stage of a recession begins when the three-month average of the U.S. unemployment rate is at least half a percentage point above its 12-month low.
Lower-than-expected manufacturing figures and higher-than-expected unemployment rates have stoked recession fears and sent global markets into a sharp decline earlier this week.
The U.S. employment rate was 4.3% in July, well above the 0.5 percentage point threshold. The measure is widely recognized for its simplicity and ability to quickly reflect the onset of a recession, and has never failed to signal a recession in cases dating back to 1953.
Asked if the U.S. economy was in recession, Sahm said, “No,” though she added that there were “no guarantees” about where the economy would go next. If there was further weakness, it could push the economy into recession.
“We need to see the labor market stabilize. We need to see growth stabilize. Weakness is a real problem, especially if what July showed us continues, which is that this pace is going to deteriorate.”
