Claudia Sahm, the economist behind the Sahm Rule, has expressed strong approval of Federal Reserve Chair Jerome Powell’s recent speech at the Jackson Hole Symposium. Sahm believes Powell’s remarks signal a significant shift in the Fed’s approach to labor market policy.
In his speech, Powell emphasized the Fed’s dual mandate of controlling inflation and promoting maximum employment. Sahm lauded Powell’s statement, “We do not seek or welcome further cooling in labor market conditions.” She considers this a remarkable declaration, underlining the importance of the Fed’s commitment to both inflation control and a healthy labor market.
Sahm’s praise stems from her in-depth analysis of Powell’s previous speeches at Jackson Hole. She observed that while the latest speech reflects a shift in perspective, some details might not hold up over time, indicating the complex and dynamic nature of economic policy. Despite this, Sahm acknowledges the Fed’s significant commitment to addressing inflation, which remains above target. While the situation isn’t a crisis, the Fed is expected to adopt a more accommodative approach.
Powell’s speech comes at a pivotal time for the U.S. economy, grappling with potential recessionary pressures and a cooling labor market. In his address, Powell expressed growing confidence that inflation is on a sustainable path back to 2%. This optimism underpins the Fed’s consideration of rate cuts, aimed at stimulating economic growth.
The potential rate cuts are also significant in light of recent economic data. The U.S. Labor Department reported a rise in the unemployment rate to 4.3% in July, the highest since October 2021. This data aligns with Powell’s observation that the labor market is showing signs of cooling.
Sahm has been a vocal advocate for discussing the labor market in the context of Federal Reserve policy. Despite ongoing debate about the Sahm Rule’s application, she maintains its relevance, arguing that the labor market should be a key focus for the Fed.
However, some analysts remain skeptical about the effectiveness of rate cuts in averting a recession. Garry Evans, chief strategist of global asset allocation at BCA Research, warns of an impending U.S. recession, asserting that anticipated Fed rate cuts will not be sufficient to prevent it. Evans points to signs of a slowing economy, including a deteriorating labor market.
Powell’s speech has generated significant discussion, raising questions about the Fed’s future course and its impact on the U.S. economy. The coming months will be crucial in determining the effectiveness of the Fed’s policy decisions and their influence on inflation, employment, and the overall economic outlook.
