Global stock markets are in turmoil following the triggering of the Sahm Rule, signaling a possible recession after a weak US jobs report. Named after economist Claudia Sahm, the rule indicates a recession when the US unemployment rate is 0.5% above its lowest point in the past year. With the rate hitting 4.3%, panic has ensued among investors who fear the Federal Reserve waited too long to cut interest rates.
Despite the Sahm Rule being activated, Sahm herself doubts a recession is imminent due to positive economic indicators like increasing household income and resilient consumer spending. Capital Economics also noted the rise in unemployment was driven by labor force expansion, not decreased employment.
Federal Reserve chairman Jerome Powell downplayed the rule’s impact, hinting at a rate cut in September. Analysts speculate the Fed may act sooner than expected following the rule’s activation, with some predicting a 0.50% cut in interest rates. Markets are now pricing in significant rate cuts over the next year, a move typically associated with recession.
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