Odd Lots How To Use Fiscal Stimulus To Stave Off The Next Recession
Feb 3, 2020
Claudia Sahm, a former Fed economist known for the 'Sahm Rule' recession indicator, discusses the importance of aggressive fiscal policy in preventing economic downturns. She highlights the shift from monetary policy to well-timed fiscal responses, emphasizing direct payments to households. Sahm shares insights on effectively disbursing stimulus funds and navigating the complexities of economic data. The conversation also touches on the challenges faced by households during recessions and advocates for a proactive, innovative approach to fiscal measures for future stability.
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Trial by Fire
- Claudia Sahm's first forecast at the Federal Reserve was in January 2008, at the start of the Great Recession.
- No economic models accurately predicted the recession, leading to widespread imposter syndrome among economists.
Consumer Sentiment as Leading Indicator
- Consumer sentiment deteriorated before the Great Recession, even though macroeconomic data like spending and income seemed positive.
- Household surveys revealed pessimism about income expectations, which proved accurate in hindsight.
Why Fiscal Policy?
- The renewed focus on fiscal policy stems from economists' soul-searching about monetary policy's limitations at the zero lower bound.
- Congress's premature fiscal pullback during the recovery and the economy's slow response also contributed to this shift.