Macroeconomist Claudia Sahm, Chief Economist at New Century Advisors, discussed the health of the US economy and the Federal Reserve's policy considerations, particularly in light of recent economic data for July 2026. She noted that the jobs report, while showing a dip in labor force participation, indicated job creation keeping pace with labor force growth, maintaining a steady unemployment rate and leading her to conclude that she is "not on recession watch." The July CPI release was also encouraging, with core inflation rising two-tenths of a percent month-over-month, annualizing to a figure close to the Fed's target, providing further evidence of a disinflationary trend. However, the PCE release at the end of July showed inflation at 3.7%, and core inflation at 2.5%, while CPI was 3.4% year-on-year.
Sahm highlighted the debate surrounding Federal Reserve Chair Kevin Warsh's vision, particularly after his July press conference where he hinted at a redefinition of inflation measurement and the Fed's role. Sahm, a former Federal Reserve economist, stated that Warsh has been critical of the Fed since leaving and is now aiming to be a transformative Fed Chair. She suggested that at the upcoming Jackson Hole meetings, Warsh might elaborate on his view of reducing forward guidance, a position she believes could garner consensus among central bankers globally.
A significant concern for Sahm is the risk of fiscal dominance, a scenario where the Treasury dictates monetary policy. She expressed unease about Warsh's past remarks on a new Treasury-Fed accord and recent messaging from the White House and Treasury that she perceives as pushing the Fed to act in certain ways. Sahm emphasized that while the institution of the Fed has protections against such influence, the current high level of government debt creates incentives that could lead to fiscal dominance, posing a real inflation risk and potentially going in a "very bad direction pretty quickly" for bond markets.
