Sahm rule maker doesn’t think Fed needs emergency rate cut

Claudia Sam, chief economist at New Century Advisors, said the Federal Reserve does not need to cut interest rates urgently despite recent weaker-than-expected economic data.

“We don’t need an emergency shutdown, and I don’t think it’s necessary based on what we know right now,” Sam told CNBC’s “Street Signs Asia.”

However, she said there was a strong case for a 50 basis point rate cut, adding that the Fed needed to “let go” of its restrictive monetary policy.

While the Fed is interested in using interest rates to put downward pressure on the U.S. economy, Sam warned that the central bank needs to be vigilant and not wait too long to cut rates because it takes a long time for interest rate changes to have an impact on the economy.

“The best-case scenario is that they start gradually easing policy ahead of schedule. So what I’m talking about (the risk of a recession) is that I still feel very strongly that that risk exists,” she said.

Sam is an economist who came up with the so-called Sam’s Ruleswhich states that the initial stages of a recession have begun when the three-month moving average of the U.S. unemployment rate is at least half a percentage point above the 12-month low.

Weaker-than-expected manufacturing data and higher-than-expected unemployment heightened recession fears and sparked a Global Market Collapse Earlier this week.

The U.S. employment rate was 4.3% in July, breaking the 0.5 percentage point threshold. This indicator is widely recognized for its simplicity and ability to quickly reflect the beginning of a recession, and it has never failed to predict a recession. The cases date back to 1953.

When asked if the U.S. economy was in a recession, Sam said no, but she added there was “no guarantee” where the economy was headed next. If the economy weakened further, then the U.S. economy could fall into a recession.

“We need to see the labor market stabilize. We need to see economic growth stabilize. The weakness in the economy is a real problem, especially if what happened in July persists, the pace of economic growth will deteriorate further.”