Claudia Sahm developed a renowned tool that has accurately predicted every recession since 1959. Here's her current outlook.

This week's economic updates have been rapid. Oil prices have exceeded $100 a barrel for the first time since 2022, largely due to the escalating conflict involving the US and Israel against Iran. The Strait of Hormuz, a crucial route for about 20% of the world's oil and gas, has faced significant disruptions, with three ships reportedly hit by unidentified projectiles just yesterday. Stock markets in the US, UK, and Europe have seen sharp declines, reviving concerns about a potential recession.

If you're feeling uneasy, that's completely understandable. "I strive to remain calm, but I experience anxiety too," Claudia Sahm shared in a recent discussion. "This situation is quite serious."

As the architect of the Sahm Rule, a recession indicator with a flawless track record since 1959, her insights carry weight. Sahm, a former chief economist at the Federal Reserve and a senior economist during the Obama administration, also authors the popular Substack newsletter Stay-at-Home (SAHM) Macro.

In a recent urgent dialogue, Sahm shared her perspective on the rising oil prices, the implications of the Sahm Rule, and financial strategies for women during economic uncertainty.

Are We Facing a Recession?

Jean Chatzky: How grave is the current conflict, and what's your outlook on its duration?

Claudia Sahm: The situation is critical. We're witnessing the early stages, and predicting its evolution is difficult. Whether the Strait of Hormuz will reopen or remain closed is uncertain. I recognize why people feel anxious.

At this time, I'm not sounding the alarm for a recession. There's still considerable strength in the US economy, but this event could be another shock, as economists term it. Last year, the economy managed through challenges fairly well, yet we now face potential new hurdles.

Impact of $100 Oil on Your Finances

Jean Chatzky: We know that high oil prices impact more than just fuel costs. What are the broader implications for consumers?

Claudia Sahm: The duration of these elevated prices is crucial. Gas prices have already surged over 50 cents nationally and continue to climb. Diesel prices, vital for transportation, have also increased significantly. Consider your grocery shopping; many items rely on diesel for delivery, and energy costs are embedded in packaging.

While these costs may seem minor compared to overall expenses, prolonged high energy prices will compel businesses to pass on costs to consumers. This may not be immediate or obvious, but it can accumulate over time.

Final Thoughts: Stay Composed and Create a Safety Net

Jean Chatzky: You've mentioned that you don't foresee an imminent recession, yet you've expressed concerns about the economy. What guidance do you have for individuals, consumers, and investors aiming for stability in their finances?

Claudia Sahm: During uncertain times, a cautious approach is wise. Many Americans may receive larger tax refunds this year; consider setting that money aside instead of increasing spending. Building a financial buffer is crucial.

We are resilient, and so is the economy. Acknowledging challenges and doing our utmost to navigate them is essential. Avoiding panic is key, even if the situation worsens. We must keep moving forward.