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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 medical advice column. But I found myself ruminating on medical analogies as I looked at recent economic data. The United States has probably not yet entered a recession. But the economy definitely looks pre-recession. And policymakers – which for now necessarily means the Federal Reserve – will have to act temporarily to protect themselves from the dangers of a serious economic deterioration.
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 seems to be before the recession?Most important is the unemployment rate, which has been gradually increasing in recent months. Friday’s jobs report triggered the Sahm rule, which holds that a large enough increase in the unemployment rate is a strong indication of the start of a recession. Many economists, adds Claudia Sahm, who developed the rule, say that, for a variety of technical reasons, the scenario may not be as dire as it seems. However, the scenario is still worrying.
These are only official data. Private investigations and general rumor also point to a slowdown in the economy. Consumer assessment of the hardworking market through consumers surveyed through the Conference Board has deteriorated, Amazon has warned that consumers appear cautious, etc. None of this portends a recession, but it does point to a growing threat of recession in the near future.
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