Who is Claudia Sahm, the creator of the indicator that spread terror in the markets?

He market collapse last Monday and an indicator had predicted them. This is Sahm’s rule, which by combining a series of factors alerts about the beginning of a US recession. Its creator is Claudia Sahm, an influential voice in economic and fiscal policy debates, who served at the Federal Reserve.

The Sahm Rule, designed to signal the start of a recessionwas officially activated in the United States last week, when the domino effect began. It turns out that The three-month moving average of the unemployment rate is now 0.5% above the minimum of the last 12 months and that is a warning sign that, since 1970, seems to be infallible. That is what the index measures, which bears the name of its creator.

Claudia Sahm had said the Fed should have cut rates on Wednesday at the end of its last meeting. He also He told the Wall Street Journal that he does not believe the economy is on the immediate brink of a recession, but that the situation is getting worse. In this context, the Bank of America provided a historical table of the times it was activated in the past.

On this occasion, one thing to keep in mind is that, Unemployment is rising from a historically low level. In fact, only now, with the July reading, is the rate above what the Federal Reserve (Fed) considers to be the long-term estimate, which is 4.2%.

Who is Claudia Sahm?

Claudia Sahm is a renowned American economist who has gained prominence for her research in macroeconomics, public policy, and social welfare. With a career spanning both academia and government, Sahm has become an influential voice in debates about economics and fiscal policy.

Academic Training and Professional Career

Claudia Sahm earned her PhD in Economics from the University of Michigan. Her research has focused on behavioral economics, business cycles, and fiscal policy. She began her career in academia, where she taught and conducted research at several institutions, including the University of Notre Dame and Michigan State University.

Contributions to the Federal Reserve

A significant part of Sahm’s career was spent at the United States Federal Reserve. As a senior researcher, she was noted for her work in developing economic indicators that helped forecast recessions and assess the health of the economy. Among her most notable contributions was the “Sahm ​​Rule,” an indicator that uses the unemployment rate to identify the onset of economic recessions. This indicator has become a useful tool for policymakers and economic analysts.

Activism and Social Welfare Advocacy

Claudia Sahm has been an active advocate for policies that promote social welfare and economic equity. She has argued in favor of fiscal stimulus programs and direct aid to citizens, especially in times of economic crisis. During the COVID-19 pandemic, Sahm was one of the prominent voices advocating for direct payments to families to help mitigate the economic impacts of the health crisis.

Publications and Media

In addition to her academic and technical work, Sahm has written extensively for general audiences in outlets including The New York Times, The Washington Post, and The Atlantic. Her ability to communicate complex economic concepts in an accessible manner has contributed to her reputation as one of the most influential economists of her generation.

Recognitions and Future

Claudia Sahm’s impact on economics and public policy has been recognized with numerous awards and honors. Her ability to combine academic rigor with a passion for public service continues to inspire future economists and policymakers. Today, Sahm remains an active voice in debates about economics and well-being, using her platform to advocate for policies that benefit all sectors of society.

What is Sahm’s Rule

As explained to Scope, Leo Anzolonedirector of the Center for Political and Economic Studies (CEPEC), the Sahm rule is a tool that helps identify economic recessions. It is based on a simple indicator“If the unemployment rate rises by 0.5 percentage points or more over a three-month period, it suggests the economy may be entering a recession.”

And he adds that this rule is used to “provide early signals of an economic slowdown and help in making decisions.” This is how global stock markets went into panic mode since last week, when the weak US employment report triggered “Sahm’s Rule”“, he reliable indicator that the economy has entered a recession.

As stated, the indicator is named after its creator, Claudia Sahma former Federal Reserve and White House economist. And as Anzalone explained, it is the rule that indicates that a recession has begun when the three-month moving average of the unemployment rate in the US is 0.5 percentage points or more above its minimum during the previous 12 months.

That threshold was crossed when US government data showed that the unemployment rate had reached 4.3%, its highest level since October 2021.

The Sahm Rule reading hit 0.53 points in July, according to the Federal Reserve Bank of St. Louis. Florian Ielpo, head of macroeconomic research at the investment manager Lombard Odiertold the American press that the rule was an indicator “purely empirical” without “theoretical basis“But the markets have clearly concluded that there will be a recession,” he added.

Investors are concerned that the Fed has waited too long to cut interest rateswhich are at their highest level in 23 years, values ​​to which they were brought to stop runaway inflation. Despite the data, even Sahm herself doubted that the US economy was contracting.

“I’m not worried that we’re in a recession right now.“Nobody should be in panic mode today, although it looks like some might be,” he added, noting that key measures of the economy “still look really good.”

Sahm highlighted rising household incomes along with resilient consumer spending and business investment. “This time it could really be different,” he said.