"Sahm Rule" Creator: The Fed Can't Wait Any Longer, an October Rate Hike Is the Safer "Insurance"

October 21 — Three weeks ago, the market still saw a 70% probability of an October Fed rate hike; today, that figure has dropped to just 17%. Just as Wall Street grows increasingly convinced the Fed will hold steady, former Fed economist and creator of the "Sahm Rule," Claudia Sahm, has taken the opposite side. The reason lies in several deteriorating data points: August PCE inflation rose to 3.4%, September core CPI ran at an annualized rate of about 4%, transportation and warehousing price gains hit their highest since 2022, and oil price expectations are resurfacing.

Sahm worries that what the Fed truly needs to guard against is no longer "one more hike," but being forced to slam on the brakes again after inflation spirals out of control. Another question is: if the Fed doesn't hike in October, what can it point to as proof that inflation will actually return to 2%? Is a 25-basis-point October hike worth it? Sahm has done the math for the Fed: standing still now could mean paying a higher price later.