Former Federal Reserve Economist: Economic Data May Be Distorted, Fed Could Misjudge the Situation

Former Federal Reserve economist and creator of the Sahm Rule, Claudia Sahm, stated that if the Federal Reserve continues to overlook grassroots economic signals, it may misjudge economic conditions due to distorted macroeconomic data. Sahm pointed out that the so-called "resilience" in current U.S. consumption data does not stem from growth in household wealth, but rather from families taking on more debt and lowering consumption standards to make ends meet. The Fed’s latest Beige Book shows that nearly half of the regional Federal Reserve banks have observed consumers covering daily expenses via credit cards, small loans, and other means. Meanwhile, grassroots consumption pressure is building: consumers in some regions are cutting back on high-priced food due to elevated prices, and demand for food assistance from charities has even exceeded levels seen during the 2008 financial crisis and the COVID-19 pandemic. In the labor market, Sahm noted a gap between the official low unemployment rate and workers’ actual experiences. Fed interviews show that some workers describe the current job market as "survival-oriented" rather than stable. Due to concerns over economic uncertainty, workers are less willing to switch jobs, choosing to stay in their roles even amid stagnant wages. Sahm warned that while grassroots economic pressure is intensifying, some companies are proactively raising wages amid workers’ rising cost of living, which could reignite inflation risks. She argued that as a data-driven institution, the Fed should not rely solely on macro statistical data, but also needs to focus on ordinary households’ real perceptions of prices and employment; otherwise, it may miss important signals of economic changes.