The Long View: Claudia Sahm - Thinking Through Scenarios in a Whiplash Economy

Why It Matters

Sahm’s analysis shows that conventional monetary policy may be insufficient against persistent supply‑side shocks, forcing investors and policymakers to adopt broader risk‑management strategies to safeguard growth and curb inflation.

Key Takeaways

• Supply shocks dominate current economy, creating stagflation‑like pressures.
• Fed’s tools limited for cost‑side shocks; focus shifts to risk management.
• Scenario analysis essential to navigate rapid, unpredictable macro “whiplash.”
• Consumer sentiment deteriorates despite modest inflation data, fueling policy concerns.
• Emerging AI productivity boost could offset inflation while spurring growth.

Summary

The Long View podcast features Claudia Sahm, chief economist at New Century Advisers, discussing today’s “whiplash economy.” She outlines how a succession of supply‑side disruptions—from pandemic‑induced labor shortages and global tariffs to the Ukraine war, Middle‑East tensions, and a looming AI productivity wave—has created a rare mix of rising prices and slowing growth reminiscent of 1970s stagflation. Sahm stresses that traditional monetary tools are blunt for these cost‑driven shocks. The Federal Reserve, she explains, has pivoted toward a risk‑management posture, emphasizing scenario analysis and readiness to pivot rather than relying on a single base‑case forecast. This approach aims to shield the economy from worst‑case outcomes as the distribution of risk widens. She highlights several vivid points: bad supply shocks simultaneously lift inflation and depress output; good shocks like deregulation and AI could boost productivity and ease price pressures; and consumer sentiment has hit an all‑time low, driven not just by gasoline prices but by broader uncertainty. Sahm also notes the Fed’s communication challenge—bridging the gap between technical data (CPI, GDP) and everyday pain points such as “the pump price.” For investors and policymakers, the takeaway is clear: prepare for multiple, rapidly shifting scenarios, monitor emerging data streams, and recognize that policy levers may need to evolve beyond interest‑rate adjustments. Understanding the nuanced supply‑side dynamics will be crucial for navigating growth and inflation risks in the months ahead.

Original Description

The noted economist on the impact of supply shocks, the origins of the Sahm rule, why she thinks the Fed will remain in a holding pattern on rates, and more.

Our guest on the podcast today is Claudia Sahm. Claudia is chief economist at New Century Advisors, the founder of Sahm Consulting, and a regular contributor at Bloomberg Opinion. She has policy and research expertise in macroeconomics, consumer spending, and household finance. She created the Sahm rule, an automatic trigger for stimulus payments in recessions. Previously, she was a section chief at the Federal Reserve, where she oversaw the Survey of Household Economics and Decisionmaking. Before that, she worked for 10 years on the staff’s macroeconomic forecast. She was a senior economist at the Council of Economic Advisers. She holds a Ph.D. in economics from the University of Michigan and a bachelor’s degree in economics, political science, and German from Denison University.

Episode Highlights

00:00:00 Lessons From the Fed During the Global Financial Crisis

00:04:56 Making Sense of Fed-Speak

00:09:29 The “Whiplash Economy” and Understanding Risk

00:14:21 Rising Gas Prices, Geopolitical Uncertainty, and Consumer Sentiment

00:18:03 Interest Rates, AI, and Fed Leadership Changes

00:29:48 Undoing the Effects of Trump’s Tariffs

00:33:34 The Sahm Rule and Recession Risk Today

00:43:56 Costs of Underfunding US Economic Data

00:49:57 “Economics Is a Disgrace”