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On Thursday, August 22, a day after the U.S. Bureau of Labor Statistics announced the largest downward revision of non-farm payroll employment in fifteen years, Claudia Sahm, the proposer of the "Sahm Rule," Chief Economist at New Century Advisors, and former Federal Reserve economist, stated that this revision provides the Federal Reserve with "absolute justification to cut rates by 50 basis points in September," and she believes that "the Fed should have cut rates long ago."

Claudia Sahm said that a substantial rate cut of 50 basis points by the Federal Reserve in September is "not necessarily a mistake," especially if one considers that a 25 basis point cut should have been made in July, "perhaps it's just that the initial rate cut started a bit slow."

She believes that the Federal Reserve can only make decisions based on the data and information available at the time, so it should not be blamed for cutting rates too late, as a weakening labor market is indeed needed to reduce inflation. The significant downward revision of non-farm payroll employment over the past year through March is "hindsight," indicating that the slowdown in the U.S. labor market is greater than previously thought:

"Thus, a 50 basis point rate cut is not necessarily a mistake, but rather a 're-calibration' of policy, bringing it back on track."

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She also emphasized that the Federal Reserve should not view the issue with the mindset that "every future data point could guide decisions," but should focus more on direction or forecasts. From this perspective, the Fed should have cut rates long ago, as the labor market's weakness has been excessive:

"The employment data that has the most significant impact on the Fed's decision-making is not the September non-farm employment, but the employment report six months later. We do not have that future employment data when cutting rates in September, but the Federal Reserve must be able to predict this momentum trend, to forecast the direction of things.

The Federal Reserve should now place greater emphasis on the mandate of maximum employment, and the focus on the labor market should not be less than the importance of reducing inflation. The balance between the dual mandates of employment and inflation has shifted, and many Fed officials have acknowledged this."

She also said that it is now time to recognize that the U.S. labor market is no longer strong, and Powell should also acknowledge this, and may not mention strong employment in his speech at the Jackson Hole Annual Meeting on Friday, "because it is not strong, but weakening."

Two weeks ago, when European and American stock markets plummeted due to concerns that the U.S. July non-farm employment indicated that a recession had already arrived, the proposer of the "Sahm Rule" stood up against the market's overly pessimistic expectations, saying, "The U.S. economy has not yet fallen into a recession, but it is uncomfortably close." She expected that Federal Reserve policymakers might readjust their approach to take into account the increasing risks.

Subsequently, she further proposed that considering the changes in the U.S. labor market, the Sahm Rule has become somewhat ineffective and cannot prove that the U.S. has fallen into a recession. For example, the current rise in unemployment is no longer due to a weakening demand for workers in the market, but due to an increase in labor supply. The surge in U.S. immigration after the pandemic has promoted the recovery of the labor market, and the resulting rise in unemployment cannot be simply used as a reference indicator for recession.Bets in the futures market on Thursday indicated that the probability of the Federal Reserve cutting interest rates by 50 basis points in September has fallen back to less than 25% from 38% the previous day, suggesting that a 25-basis-point cut is a "done deal."