The Treasury secretary says the red-hot labor market means the U.S. can avoid a recession: ‘You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years’

Employers added 517,000 jobs in December—more than double economists’ estimates—and the unemployment rate fell to a 53-year low of 3.4%, the Bureau of Labor Statistics reported last week. 

“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen told ABC’s Good Morning America on Monday.

With the Federal Reserve raising interest rates eight times since March 2022 to fight inflation, many economists feared that a painful recession was inevitable. But year-over-year inflation, as measured by the consumer price index, fell from its 9.1% June peak to 6.5% in December. And Yellen said she believes it will continue “declining significantly” from here.

“The country has been through a lot with the COVID pandemic and all the stress that was placed on the economy, and then Russia’s war in the Ukraine that boosted food and energy prices…But really we have a strong and resilient economy,” she said. “And inflation is coming down.”

Yellen went on to praise President Joe Biden’s economic policies ahead of the Tuesday State of the Union address, saying that his ability to reduce gas prices using the Strategic Petroleum Reserve and drug prices using the Inflation Reduction Act has helped combat inflation. The “trifecta of legislation” passed under President Biden, which includes the CHIPS Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act, is an example of “investing in America again” that will pay off, she argued.

Yellen also reiterated her plea to politicians to come to an agreement regarding the debt ceiling, warning the U.S. could face “an economic and financial catastrophe.” 

“Every responsible member of Congress must agree to raise the debt ceiling. It’s something that simply can’t be negotiable,” she said. “And while sometimes we’ve gotten up to the wire, it’s something that Congress has always recognized as their responsibility and needs to do again.”

After the federal government hit its $31.4 trillion debt ceiling in January, some experts warned that the U.S. dollar could “collapse” and lose its reserve currency status. But billionaire investor Ray Dalio argued last month that there is “no real debt ceiling,” noting it’s already been raised or suspended 78 times since 1960. “It’s a farce that works like a bunch of alcoholics who write laws to enforce drinking limits,” the founder of Bridgewater Associates, the world’s largest hedge fund, wrote in a LinkedIn post. “When a limit is reached, they do a farcical negotiation that temporarily eliminates the limit, which allows them to have the next drinking binge.”