Claudia Sam, chief economist at New Century Consultants, said that despite recent economic data being weaker than expected, the Federal Reserve does not need to cut interest rates urgently.
“We don't need an emergency production cut, and based on what we know right now, I don't think everything is necessary yet,” Sam told CNBC's “Street Signs Asia.”
However, she said there was good reason for a 50 basis point rate cut, adding that the Fed needed to “ease” its restrictive monetary policy.
Although the Fed intends to use interest rates to put downward pressure on the U.S. economy, Sam warned that the central bank needs to remain vigilant and not wait too long before cutting interest rates, because it takes a long time for interest rate changes to have an impact on the economy.
“The best-case scenario is that they start gradually easing policy early. So I'm talking about the risk (of a recession), which I still feel strongly about,” she said.
Sam is the economist who proposed the so-called Sam Rule, which states that the initial stage of a recession begins when the three-month moving average of the U.S. unemployment rate is at least half a percentage point above its 12-month low. here we go.
Lower-than-expected manufacturing data and a higher-than-expected unemployment rate heightened recession fears and triggered a plunge in global markets at the start of the week.
The U.S. employment rate in July was 4.3%, breaking the 0.5 percentage point threshold. This indicator is widely recognized for its simplicity and ability to quickly reflect the onset of a recession, and has never failed to signal a recession. The case dates back to 1953.
Asked whether the U.S. economy was in recession, Sam said no, but added that there was “no guarantee” where the economy would go next. Further weakness could lead to a recession.
“We need to see the labor market stabilize. We need to see growth level off. Economic weakness is a real problem, especially if the conditions in July persist, then the growth rate will worsen.”