The U.S. economy is in a strange place. Inflation is stubborn at 2.7%, job growth numbers have been revised down, trade barriers are up, investment sentiment is dropping in some quarters like the global market for U.S. bonds, and yet the stock market keeps climbing to fresh records.

Is the U.S. economy in its weird era? Are we about to go into a recession? Or are we set for a fresh round of market records?

To figure it all out, BBTW editor Peter Green spoke with Claudia Sahm, Chief Economist for New Century Advisors, and a former economist at the Federal Reserve. She is best known for the “Sahm rule,” a Fed economic indicator for identifying recessions in real-time.

What’s going on with the economy? Half the world is saying we’re in trouble, and the other half is saying, “look how wonderful it all is.”

Claudia Sahm: There’s data out there for everyone. Growth has slowed this year, and some of that is we’d had a few years of really remarkable growth in the U.S., far exceeding our peers. So some of that slowing down probably was getting back to something more typical. In addition, there have been policies put in place — not just the tariffs, but also immigration, that have a big effect on slowing the growth of the labor force. That’s an absolute key input into how much the economy grows. Then we’ve had a lot of uncertainty, and that also tends to slow down business decisions and household decisions, and so in the first half of the year, real inflation-adjusted GDP growth slowed considerably relative to last year. We have seen inflation start to pick up, and we’re moving in the wrong direction.

What’s fueling that?

A lot of that has to do with the tariffs, which are slowly being passed through to consumers as a price increase that shows up as inflation. You could look at this economy and point to a very mild case of what we call stagflation: Growth slowing and inflation moving up. It’s not a given that [the Fed] starts cutting interest rates quickly, because inflation still is and has been for over four years above their target.

The president keeps saying that interest rates are too high and a rate cut would stimulate the economy, making it cheaper to buy homes, invest in business and pay down debt, including the national debt. To what extent is that true?

It’s a very persuasive narrative, and it’s what people would like to hear. The piece missing from the narrative is that inflation is still elevated. The Consumer Price Index and the Personal Consumption Expenditure Index that the Fed focuses on are elevated. So if the Fed were to cut interest rates aggressively, then you could be in a situation where it would stimulate demand and that could be a problem in terms of inflation taking back off.

So what should we be looking for, then?

The Fed is in risk management mode. It’s considering the risks of inflation becoming persistent, or even moving higher, and the risks of employment falling further. The unemployment rate at 4.2% is still very low. Inflation is going to move back down to target. The Fed knows that if we keep putting on this much pressure, we might lose the labor market. So it’s a timing question within the Fed.

Speaking of the unemployment rate, you’re famous for the concept of looking at the three-month moving average increase in unemployment to determine if the economy is in a recession. Is that an imminent danger?

Not in the near future. While [unemploiyment] moved up in July, it’s been relatively stable over the past year, between 4% and 4.2%, so the Sahm Rule calculation is far from its trigger now. We went from having very high immigration to now the reverse, and as you have fewer workers out there looking for jobs, you don’t have to create as many jobs to keep the unemployment rate low.

Has the data been affected by the fact that many of those who are now without jobs may be undocumented or afraid to register for unemployment or answer household surveys?

A chilling effect in terms of participating in the survey could absolutely be at play, [and] you are taking a number of people seeking work out of the labor force. Typically, the changes are gradual. Aging happens slowly. When you have abrupt changes in the labor force survey, like with these immigration changes, which were very large increases in immigration followed by a very big decrease in immigration, that’s a different kind of shock. It’s not a recession, it’s just the economy will grow more slowly.

Is there a structural threat to the US economy that things could permanently shift because of the tariff war, and what that’s been doing to the flow of goods and investment?

That risk is there, but as policies change and the administration walks back and tones down some of the more aggressive tariffs, not so much. The U.S. was really outperforming the rest of the world in growth and in productivity, and we’ve seen a regression to the mean, but the risk of a structural decline is more prominent than we should be comfortable with. When it becomes part of the conversation, you have a problem.

This interview has been edited and condensed for brevity and clarity.

—Peter S. Green

Watch Big Business This Week on Cheddar—and YouTube!$ADM ( ▼ 0.9% )   $NVDA ( ▲ 0.19% )   $GOOGL ( ▲ 0.66% )   $MSFT ( ▲ 0.28% )   $F ( ▼ 0.31% )   $PSKY ( ▼ 65.64% )   $NFLX ( ▲ 2.31% )   $DJI ( ▼ 0.13% )   $SPX ( ▼ 0.11% )   $C ( ▲ 0.28% )   $GS ( ▲ 0.05% )   $INTC ( ▲ 2.3% )   $UST.X ( ▼ 6.89% )   $AOL ( 0.0% )   $MTCH ( ▲ 0.31% )   $WLFI.X ( 0.0% )   $ALTS ( ▲ 3.59% )   $BNB.X ( ▼ 0.44% )   $USD1.X ( ▼ 0.56% )   $GIL ( ▲ 1.11% )   $99CENTS.X ( ▼ 0.33% )   $HBI ( ▼ 0.23% )   $SAVEQ ( ▲ 0.43% )   $AAPL ( ▼ 0.02% )  The usual suspects

• Where’s the Vig? After loudly protesting that the sale of high-powered computer chips to Chinese firms was undermining U.S. national security and U.S. efforts to become the world’s biggest AI player, the Trump Administration has agreed to let chipmakers ADM $ADM and Nvidia $NVDA sell chips to China, albeit for a 15% fee. The U.S. Constitution forbids taxes on exports, so the deal is structured as a voluntary agreement, CNN reported. Instead, Nvidia and AMD will voluntarily send funds to the U.S. government. “It’s hard to identify any historical precedent for this sort of arrangement,” Sarah Kreps, director of the Tech Policy Institute at Cornell University’s Brooks School of Public Policy, told CNN. Foreign trading partners are looking askance at the arrangement. “Trump’s Nvidia shakedown is unprecedented and scary,” wrote Australia’s leading business publication, the Australian Financial Review. “The chip maker is the latest firm to learn about the U.S. president’s new corporate playbook: threaten a company and then watch them agree to a ‘deal’.”
• Chrome-plated? With Google $GOOGL facing a possible court-ordered breakup in the next few weeks that could force it to separate its browser business from its search engine, AI start-up Perplexity is offering to buy Chrome for $34.5 billion. That’s a lot, considering Perplexity is valued at only $18 billion. Google’s 90% share of the search market has the Justice Department arguing that forcing it to divest Chrome would create a more competitive playing field. But Google, Perplexity, OpenAI, Microsoft $MSFT and others are locked in a battle to use AI chatbots to offer users short sentences rather than just a list of links. Owning Chrome would simplify things for Perplexity.
• The appliance of science. GE Appliance, the washing machine, stove, and fridge-maker that GE sold to China’s Haier Smart Home in 2016, said it’s planning to spend $3 billion to modernize its U.S. plants over the next five years, creating 1,000 jobs.
• There’s a ($30,000 Electric) Ford in Your Future: Ford $F is about to shake up the EV business, with a promise to introduce a $30,000, mid-sized, four-door pickup in 2027. The key is a new assembly line concept that splits production into three simultaneous lines and which CEO Jim Farley called “The most radical redesign of how we manufacture cars since the Model T.” High production costs mean Chinese players like BYD have amassed massive market share with their cheaper assembly lines.
• Cage fighter: Paramount’s $PSKY new CEO, David Ellison (son of Oracle co-founder and Trump bestie Larry Ellison), has just grabbed America’s most vicious sport by the jugular, signing a $7.7 billion, seven-year exclusive streaming and broadcast contract with the Ultimate Fighting Championship, knocking out Disney’s ESPN, which was paying half that. A top challenge for Ellison is boosting Paramount’s streaming services. They gather only about 2% of U.S. viewers’ eyeball hours, versus 8.3% for Netflix $NFLX and 12.8% for YouTube $GOOGL.
• About that stock market: Both the Dow $DJI and the S&P 500 $SPX hit records this week, suggesting investors see stock prices continuing to rise, fueled partly by a cut in interest rates. Citigroup $C and Goldman Sachs $GS both predicted interest rate cuts of a quarter point each in September, October, and December, and traders are reportedly seeing a 94% chance of a rate cut next month. If that continues into next year, the Spring could see rates as low as 3% to 3.25%. But those bad jobs numbers, stubborn inflation, and the effect of tariffs on consumer prices have others worried.
• Intel’s back Inside: After a meeting with Pres. Donald Trump on Monday, Intel $INTC CEO Lip-Bu Tan may have lifted one burden from his shoulders as he attempts to revive the stumbling U.S. chipmaker. Last week, Trump grew upset over Tan’s supposed links to the Chinese Communist regime. “The CEO of INTEL is highly CONFLICTED and must resign, immediately. There is no other solution to this problem. Thank you for your attention to this problem!” Trump thundered on his own social media channel. After the meeting, Trump called their discussion “a very interesting one.” Tan is a U.S. citizen who was born in Malaysia and grew up in Singapore. Intel’s shares have fallen 55% in the last five years, though they are up about 10% since Tan took over in March.

The short stack

• CryptoKlepto: When supposed crypto stablecoin TerraUSD $UST.X crashed and burned in 2022, as many as 1 million holders lost a combined $40 billion. Now the coin’s issuer, Stanford-educated Do Kwan has pleaded guilty to two counts of fraud in federal court, faces up to 25 years in prison. “I knowingly agreed with others to engage in a scheme to defraud—and indeed, in fact, did defraud—purchasers of cryptocurrency issued by my companies,” Kwon, wearing a yellow prison jumpsuit, said in federal court this week. Kwon conceded he lied about the price-balancing algorithm that kept the coins worth $1.
• You’ve got…a dial tone? Remember AOL $AOL , whose tagline inspired that Meg Ryan movie, “You’ve Got Mail?” Well, surprisingly, it’s still got the old telephone dial-up service whose whirrs and buzzes were a constant feature of the OG internet. At least, until Sept. 30, when AOL is ending dial-up service. It’s not clear how many people still use it, but in 2015, AOL still had more than 2 million dial-up users, generating revenue of more than $40 million of revenue a month.
• MisMatched: Match.com and Tinder parent Match Group $MTCH agreed to pony up $14 million for love-hunters who found it hard to cancel their subscriptions once they’d found their match. The companies said they admit “no liability,” but the FTC will use the money to pay back users who were forced to keep paying even after they canceled subscriptions. Who says money can’t buy you love?

Trumplandia

• It’s kick the can time again for Chinese tariffs. On Monday, Trump said he’d hold off on China tariffs for another 90 days, in part to hold a summit with China’s leader, later this year. U.S. tariffs on Chinese imports are now 30%, while Chinese tariffs on U.S. imports are at 10%. Just before signing the order, Trump made a call on social media for China to buy U.S. soybeans. "Rapid service will be provided. Thank you President XI," Trump said. China imported about 105 million metric tons of soybeans last year, less than a fourth of that from the U.S. and most of the rest from Brazil. But tensions with the U.S. have China looking at Argentine soybean exports, and in the knock-on-effect world of global trade, rising prices in China have locals eating out less often, sapping demand for soybean oil, some of which China is now exporting to the U.S. for use in biofuel. “It’s highly unlikely that China would ever buy four times its usual volume of soybeans from the U.S.,” Johnny Xiang, founder of Beijing-based AgRadar Consulting told Reuters. Soybean futures are up about 4% since Trump put off the trade war with China, but still down 3.2% since Trump took office.
• More than just a bunch of Kevins? CNBC reporters found that Trump is now considering 11 candidates to replace Fed Chair Jerome Powell when his term expires in April. That’s up from four last week, which included two guys named Kevin: Kevin Hassett, director of the National Economic Council and former Fed Governor Kevin Warsh. Treasury Sec. Scott Bessent will interview them all, then pass a list of his faves to Trump. Meanwhile, Trump’s nominee for a suddenly vacant Fed seat, Stephen Miran, has markets on edge, concerned he’ll push the Fed to slash rates too quickly. Miran’s nomination “raises another red flag of risk on U.S. assets” Richard Cochinos, a foreign exchange strategist at RBC Capital Markets, wrote in a research note on Thursday.
• Stats Man Down? President Trump’s nominee to run the beleaguered Bureau of Labor Statistics, which Trump accused without evidence of changing employment data to embarrass him, is raising hackles on the right, with prominent conservative economists doubting the new man’s credentials. The presumed nominee, E. J. Antoni, has spent his career at the right-wing Heritage Foundation, looking at taxes and social security, and not at the labor and macroeconomic issues that are the agency’s focus. Dave Hebert, an economist at the conservative American Institute for Economic Research took a hard swipe at 37-year old Antoni in a post on X: “I’ve been on several programs with him at this point and have been impressed by two things: his inability to understand basic economics and the speed with which he’s gone MAGA. I can only hope the Senate blocks this.”
• Ka-ching! It’s complicated, but the Trump family cryptoventure World Liberty Financial $WLFI.X has a deal with a little-known tech firm called ALT5 Sigma $ALTS (no, that’s not a key on your computer keyboard) to sell $750 million of World Liberty’s $WLFI coin. ALT5 Sigma will finance the purchase by selling $1.5 billion of its own shares and will give an undisclosed number of those shares to the Trumps’ World Liberty. Eric Trump will join ALT5 Sigma’s board. Emulating what firms like Strategy have done with Bitcoin, the concept here is that shares in ALT5 are a kind of proxy for the $WLFI coin.
• Hold the bacon: Meanwhile World Liberty’s $USD1.X coin has generated some $4.5 billion for the firm’s owners, largely through trading on a platform called PancakeSwap, which the Wall Street Journal reports was created by employees at big-league crypto exchange Binance $BNB.X. Binance’s majority owner and founder, Changpeng Zhao, reported to be worth more than $70 billion, recently hired a friend of Donald Trump Jr. to push for a pardon. Zhao spent 4 months in jail last year, and Binance agreed to pay $4.3 billion in fines after a federal court found the platform had become a money-laundering hub for terrorists and sanctions evaders.
• AriZona Iced Tea and the demise of the 99-cent can: Since 1997, AriZona Iced Tea $99CENTS.X has kept the price of its signature tall boy 22-ounce can at 99 cents. Its stock ticker symbol is even “99Cents”. Keeping up with inflation would have raised the price to $1.99, but founder and owner Dan Vultaggio, who grew up in Brooklyn where his dad managed an A&P supermarket, told the New York Times he’s long believed in three principles: “Make it taste good, make it look good, and price it right.” But the Trump tariffs on imported aluminum may upend his strategy. While 80% of the aluminum used in his cans comes from recycled U.S. material, 20% comes from Canada, subjected to a 50% import duty.
• Canadian Gentlemen Prefer Hane’s: Montreal-based apparel maker Gildan Activewear $GIL will buy Hanesbrands $HBI , the North Carolina-based underwear maker, for $2.2 billion, in one of the first Canadian acquisitions of a U.S. company since President Trump slapped 35% tariffs on all Canadian imports. The two firms both use mostly U.S. cotton in their clothing, so tariffs would have a minimal effect on their business
• Disspirited: Budget airline Spirit $SAVEQ emerged from bankruptcy protection in March, but budget flyers are not flocking to its bright yellow birds, and the company said there’s “substantial doubt” it can keep going for the next 12 months. In February, Spirit rejected a bid from Frontier Airlines. Last year, JetBlue and Spirit called off a planned merger after anti-trust regulators said the larger airline would reduce competition.

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Elon’s World

• Is Apple’s $AAPL App Store favoring OpenAI over Grok? That’s what Elon Musk is alleging, saying that after Apple partnered last year with OpenAI to put its AI chatbot into its products, Musk’s own AI agent, Grok is being shut out of the top ranks at the App Store. ”Apple is behaving in a manner that makes it impossible for any AI company besides OpenAI to reach #1 in the App Store, which is an unequivocal antitrust violation,” Musk alleged. “Why do you refuse to put either X or Grok in your ‘Must Have’ section when X is the #1 news app in the world and Grok is #5 among all apps? Are you playing politics?” Musk asked in a second post. (Apple didn’t comment directly). Musk is locked in a bitter feud with OpenAI founder Sam Altman, whom he sued last year for turning the company into a for-profit machine (Musk co-founded OpenAI withAltman in 2015). Altman snapped right back at Musk: “This is a remarkable claim given what I have heard alleged that Elon does to manipulate X to benefit himself and his own companies and harm his competitors and people he doesn’t like,” Altman retorted on X. Their feud continues: On Tuesday, Musk lost his bid to dismiss a lawsuit from OpenAi claiming he’s been waging a “years long harassment campaign” using social media, press statements legal claims (see above), and “a sham bid for OpenAI’s assets.” A jury trial is scheduled for this spring.
• The Singularity is coming: Altman is clearly unwilling to let the rivalry drop. The Financial Post of Canada reports that Altman is preparing to start a new company funded by OpenAI to create its own human brain-AI interface. The firm, Merger Labs, will go head-to-head (or implant-to-implant, if you prefer) with Musk’s Neuralink.
• Pass on Gas: In Memphis, where Musk has built a massive data center to power Grok, locals are protesting the pollution from 35 un-permitted temporary gas turbines. A University of Tennessee analysis found peak concentration levels of toxic nitrogen dioxide have increased by 79% since the data center opened, TIME magazine reports, creating a public health crisis. An xAI spokesperson wouldn’t comment to Time, but the magazine says that at a new xAI site in nearby Whitehaven, Tennessee, 66 more gas turbines have been unboxed. We asked Grok: How toxic is AI? It responded: “Training large AI models consumes massive energy, contributing to carbon emissions. For instance, training a single large model can emit as much CO2 as a transatlantic flight.”