The Sahm Rule is a recession indicator that tracks the shifts in the US unemployment rate, comparing a three-month average of unemployment data to the past 12 months. Former Federal Reserve Board economist Claudia Sahm — whom the rule is named after — explains the origin of the indicator:

"The reason the indicator exists is I had a policy proposal to start fiscal stimulus, send out stimulus checks, in particular, as soon as a recession hits. So have kind of that front line defense against recessions to help people and get it tied to economic conditions. So it just goes out the door when it's time"

Sahm, who is also the founder of Sahm Consulting, states the rule is not for helping the Fed to make interest rate policy decisions because "[those] take more time to work." Sahm goes on to weigh that it may be time for the Fed to gradually reduce rates as "risks are building" now.

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This post was written by Luke Carberry Mogan.