Claudia Sahm thinks investors should rethink what they’re salivating for.
The Federal Reserve is likely to deliver its third interest rate cut of the year on Wednesday, widely seen as insurance against a downward spiral out of the labor market. But for Sahm — a former Fed economist, recession-indictment architect, and one of the central bank’s most closely watched outside interpreters — the more consequential question is not what the Fed will do on Wednesday. What does additional deduction mean?
“If [Jerome] “The Powell Fed is doing a lot more cuts,” she said fate Before the verdict, “Then we don’t have a good economy. Be careful what you wish for.”
That framing cuts against the bullish mood on Wall Street, where rate cuts have recently been welcomed and futures markets have priced in a second round of easing in 2026. But Sahm thinks investors should seek further cuts only if they are prepared for a recession.
Stocks expect the Fed’s tapering today — almost universally anticipated in futures markets — to be coupled with language that raises the bar for any move in January. With the core inflation rate still stuck at 2.8%, higher than the Fed’s preferred rate of 2%, and unemployment rising, the Fed is in both halves of its mandate.
“It’s a tough one,” Shah said. “Whatever they do can upset the other side.”
That tension is especially acute as Fed Chairman Jerome Powell nears the end of his term. He has three meetings left before the administration installs a successor — January, March and April — but President Donald Trump will announce his pick for the new chair (widely believed to be White House adviser Kevin Hassett) around Christmas. Once he does that, Powell effectively becomes a “lame duck” Fed chairman, though Sahm notes that “frankly, he’s been one for a while,” Trump, who has come to vociferously loathe his nominee.
Bloomberg’s Conor Senn wrote at X, “Still feels like Powell Fed’s last meeting.”
What matters now to Saham is that statistics — not politics — are driving policy. She warns that could change next year with a more political Fed.
What Sahm focuses on is not the headline rate cut but the underlying fragility in the job market that the Fed is trying to insure against.
Unemployment has risen for three consecutive months through September. The slowdown in hiring levels has historically put upward pressure on unemployment, “because you always have people coming into the labor market,” she said.
