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Paul Krugman
By Paul Krugman
Opinion columnist
As an older American, I know a few other people who have been told by their doctors that they are prediabetic. In other words, their blood sugar levels are high enough to put them at risk for type 2 diabetes, even if they don’t have type 2 diabetes. No symptoms yet. The good news is that they can lessen this particular threat by losing weight, improving their diet, and exercising more. But they will have to act temporarily to avoid serious fitness problems.
No, this is not a column of medical recommendations. But I found myself pondering medical analogies while looking at recent economic data. The United States has probably not yet entered a recession. But the economy definitely looks like a pre-recession. And policymakers — which for now necessarily means the Federal Reserve — will have to act temporarily to guard against the dangers of a serious economic downturn.
It’s already clear that the Fed made a mistake by not cutting rates last week; In fact, you probably started cutting back on your expenses months ago. Unfortunately, we cannot go backwards. But the Federal Reserve’s open market committee, which sets short-term interest rates, may make a really broad cut (probably a part of a percentage point, rather than the same quarter-point) at its next meeting, scheduled for mid-September. .
And we can only hope that the recent drop in long-term interest rates, reflecting expectations of long-term cuts from the Federal Reserve, will be enough to trigger a gratuitous economic recession.
Why do I say that the economy turns out to predate the recession?The most important thing is the unemployment rate, which has been gradually accumulating in recent months. Friday’s jobs report triggered the Sahm rule, which says a giant that is piling up in the unemployment rate is a strong indication that a recession is starting. Many economists, Claudia Sahm, who developed the rule, add that, for a variety of technical reasons, the scenario may not be as dire as it seems. It is still worrying.
This is just official data. Private surveys and general buzz also point to a slowing economy. Job marketplace sentiment among consumers surveyed through the Conference Board has deteriorated, Amazon has warned that consumers seem cautious, and more. None of this signals a recession, yet it does recommend a developing threat of one in the close to future.
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