The Best Investment Manager's Analysis: Fed Expected to Cut Interest Rates Amid Labor Market Weakness
By Bansari Mayur Kamdar
According to former Fed economist Claudia Sahm, the U.S. economy is not currently in a recession but concerns over labor-market weakness may prompt the Federal Reserve to cut interest rates by 50 basis points on Wednesday. Sahm, who accurately predicted every U.S. recession since 1970 with her "Sahm rule", believes that recent data showing a 4.3% jobless rate in July may lead to the rate cut.
Markets are pricing in a 63% chance of a 50-bps rate cut and a 37% chance of a 25-bps cut. Sahm, who is the chief economist at New Century Advisors, emphasized that the Sahm rule is an indicator, not a forecast tool, and that it failed to account for the current economic cycle.
Sahm expects the Fed's rate cut and updated projections to address recent inflation data and a softer labor market, with concerns that the projections may indicate a long-term path for lower interest rates than anticipated.
In conclusion, investors should pay close attention to the Fed's decision on interest rates, as it could have significant implications for the economy and financial markets. Understanding the potential impact of these changes can help individuals make informed decisions about their investments and financial planning.