Sahm Rule Creator Warns of Structural Labor Market Risks Beyond Recession Indicators
New York, Saturday, 31 January 2026.
Economist Claudia Sahm warns that a deceptive “low-hire” dynamic is masking structural labor vulnerabilities. She argues that relying on standard recession metrics misses these slow-moving shifts, a danger heightened by impending Federal Reserve leadership changes.
The Disconnect Between Metrics and Reality
Despite the widely tracked Sahm Rule recession indicator remaining below its trigger threshold, economist Claudia Sahm expressed deep reservations about the U.S. labor market’s stability in an interview published on January 31, 2026 [1]. The Sahm Rule, which historically signaled a recession with 100% accuracy prior to the pandemic when the three-month moving average of the national unemployment rate rose by 0.5 percentage points relative to the previous year’s minimum, currently stands at 0.35 percentage points [1][3]. While this technical figure suggests the economy is safe from an immediate downturn, Sahm argues that the “tectonic plates” of the economy began shifting during the pandemic and have yet to settle, creating a fragile environment that standard metrics may fail to capture [1]. She emphasizes that while mass layoffs are absent, a “low-hire, low-fire” dynamic has emerged, making it increasingly difficult for new entrants to find employment [1][4].
Institutional Uncertainty and the Fed’s Timeline
A critical component of Sahm’s apprehension involves the Federal Reserve’s leadership stability during this transitional period. As of late January 2026, Federal Reserve Chair Jerome Powell has only four months remaining in his tenure [1][3]. Sahm explicitly noted that while economic fundamentals have driven interest rates thus far, the impending leadership change adds a layer of volatility; she stated she would feel more confident if Powell had “two or three more years” remaining rather than a mere four months [1]. This institutional uncertainty is compounded by external political pressures, including President Trump’s anti-immigration drives which have reduced the number of available workers, and ongoing tariff implementations that businesses are attempting to navigate [1][3]. Although the Fed’s first Beige Book of 2026, released on January 15, indicated that businesses were finding “steadier footing” amid these tariffs, the broader structural risks remain a primary concern for economists monitoring the labor market’s “knife-edge” [1][4].
Structural Shifts: The K-Shaped Trajectory
Beyond immediate labor statistics, the economy is grappling with deep-seated structural inequalities that complicate the recovery narrative. Data indicates that the “wealth effect” from artificial intelligence investment is reinforcing a K-shaped economy, a trend expected to persist until 2035 [5]. While the bottom 50% of wealth holders saw their assets grow from $330 billion in Q3 2010 to $4.25 trillion in Q3 2025, the gap at the top has widened aggressively [5]. The top 0.1% saw their wealth explode from $6.53 trillion to $24.89 trillion over the same fifteen-year period, representing a massive expansion of 281.164 percent [5]. Innes McFee, CEO of Oxford Economics, warns that while AI has delivered a 7% uplift in household wealth, it is currently unlikely to bridge the gap between these economic groups and may instead lead to a “hollowing out” of middle-skill jobs [5].
Assessing the Slow-Moving Crisis
The danger, according to Sahm, lies in the slow-moving nature of these structural shifts, which are “hard to assess in the moment” [2]. While policymakers may take comfort in the absence of a technical recession, the labor market’s stagnation poses real risks to workers that do not show up in aggregate layoff data [1][4]. Sahm fears that if the Federal Reserve and other institutions remain fixated solely on the wrong alarm bells—specifically waiting for a recession indicator like hers to trigger—they may miss the opportunity to address the underlying vulnerabilities that are quietly reshaping the American workforce [1][3].