Claudia Sahm, chief economist at New Century Advisors, weighs in on the Fed’s next rate move on “Varney & Co.”
JPMorgan Chase analysts now see a greater chance that American Economy will enter recession by the end of the year.
In an analyst note released Wednesday, JPMorgan economists led by Bruce Kasman raised the odds of an economic slowdown this year to 35%, from their previous estimate of 25%, citing easing labor market pressures.
“U.S. wage inflation is slowing at a pace not seen in other developed economies,” they write. “Easing labor market conditions are increasing confidence that service price inflation will decline and that the Fed’s current policy stance is restrictive.”
They still estimate the probability of a recession in the second half of 2025 at 45%.
US JOB GROWTH SLOWS TO 114,000 IN JULY AS UNEMPLOYMENT RISES UNEXPECTEDLY
The JPMorgan Chase logo is seen at its headquarters on May 26, 2023 in New York City. (Michael M. Santiago/Getty Images / Getty Images)
Economists have also reduced the likelihood that the Federal Reserve will keep interest rates high for an extended period to just 30%. With inflation falling, JPMorgan expects the central bank to cut rates twice this year, in September and November.
“This modest increase in our assessment of recession risk contrasts with a more substantial reassessment we are making of the interest rate outlook,” they wrote.
INTEREST RATE CUTS ARE ON THE HORIZON, BUT HIGH MORTGAGE RATES COULD LAST
The analyst’s note follows the disappointing release of the July jobs report, which showed that total nonfarm payrolls increased by just 114,000 in July, while the unemployment rate unexpectedly climbed to 4.3%. The report rekindled fears of a slowdown in the economy because it triggered the so-called Sahm rule, an indicator used to provide an early signal of a recession.
The rule states that a recession is likely when the three-month moving average of the unemployment rate is at least half a percentage point higher than the 12-month low.
A “Wall Street” sign in New York, U.S., on Friday, Jan. 27, 2023. (Photographer: John Taggart/Bloomberg via Getty Images / Getty Images)
Over the past three months, the unemployment rate has averaged 4.13%, 0.63 percentage points higher than the 3.5% rate recorded in July 2023. The Sahm rule has successfully predicted every recession since 1970.
Yet Claudia Sahm, a former Fed economist and creator of the rule, suggested that the rise in unemployment this time around may not be a sign of an impending recession. She noted that the rising unemployment rate is not the result of layoffs and negative monthly wage figures, but rather an increase in the number of available workers, including immigrants.
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“What we’re seeing, even though the Sahm rule is somewhat overblown, it highlights something very concerning,” Sahm told FOX Business’ Charles Payne on Wednesday.
Stocks plunged Friday after the report, with the S&P 500 posting its worst day since October 2022. Markets have been highly volatile since then, though they opened higher Thursday after jobless claims data came in better than expected.
