Sahm rule creator sees 50-bps Fed rate cut on labor market worries

- The U.S. economy is not in a recession but labor-market weakness might worry the Federal Reserve enough to cut interest rates by 50 basis points on Wednesday, former Fed economist Claudia Sahm said.

"There was quite a bit of labor-market data, all in one direction, and it was not good. This is a Fed that has been very much behind the maximum-employment side of the dual mandate," Sahm said.Markets are pricing in a 63% chance of a 50-bps rate cut by the Fed on Wednesday and a 37% chance of a 25-bps cut.

Sahm said, however, that the U.S. is not actually in recession and the rule failed to account for the current unusual economic cycle. Sahm worries they might cause concern in the markets as most Fed officials will write down a long-term path for interest rates to be lower than some expect.

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