The Biden administration was quick to celebrate the robust jobs report after years of Wall Street experts predicting an imminent recession. “It’s been a strong labor market, and we’re glad to see it end the year on a strong note,” Jared Bernstein, chair of the Council of Economic Advisers, told Fortune in a phone interview Friday. 

Bernstein argued that the jobs report is good news for both Wall Street and Main Street, despite fears from many investors that a hot labor market could boost inflation and force the Fed to keep interest rates higher for longer, which would weigh on stocks. “At the end of the day, this idea that what’s good for Main Street is bad for Wall Street is not really correct,” he argued. 

Still, investors had a muted reaction to the strong economic data. The Dow Jones Industrial ended Friday up just 0.07%, while the S&P 500 rose 0.12%, and the tech-heavy Nasdaq composite eked out a 0.09% gain.

And when asked if the economy is experiencing a “soft landing”—when inflation fades without rising interest rates sparking a job-killing recession—Bernstein declined to answer, although he did note: “Certainly, we’ve avoided a recession as we speak.”

In a Friday statement, President Biden also argued that “this morning’s report confirms that 2023 was a great year for American workers.” Biden highlighted the fact that U.S. employers added 2.7 million jobs in total last year. The figure represents a steep decline from the post-pandemic rebound years of 2021 and 2022, but is higher than any annual pre-pandemic reading since 2015.

Despite rising borrowing costs weighing on businesses, workers got a pay raise in December. Average hourly earnings last month jumped 4.1% from a year ago, topping the consensus estimate for a 3.9% gain.

Bharat Ramamurti, former White House deputy director of the National Economic Council, said in a statement that the latest jobs report shows America’s post-COVID economic recovery has become “the envy of the world.”

Another strong jobs report, but it’s not all sunshine and rainbows

While the U.S. economy added 41,000 jobs more than anticipated in December, there were some signs of underlying weakness in the data. Despite strong job growth, the unemployment rate was unchanged at 3.7% last month. That’s just a hair below the final pre-pandemic monthly reading of 3.6%, but up from April 2023’s 3.4% low.

A declining labor force participation rate—which measures the proportion of working-age Americans who have a job or are looking for one—was another red flag. It has been stuck below pre-pandemic levels for years, and fell from 62.8% to 62.5% last month, showing that a smaller percentage of Americans are contributing to economic growth via the labor force.

“That is something we'll be watching carefully,” Bernstein, the president’s top economic advisor, told Fortune, highlighting that it was still “a very good year” for labor force participation of prime age workers aged 25 to 54.

Job growth for October and November was also revised down a total of 71,000 last month. These downward revisions to previous jobs reports became common in 2023, with the BLS revising 10 of the last 11. 

Additionally, the number of people who are employed part-time for economic reasons rose 333,000 to 4.2 million year over year last month. These workers would prefer full-time employment, but are only working part time hours because they can’t find the right opportunity or have had their hours cut.

Government jobs have also been a significant contributor to the recent labor market strength, with 52,000 of the 217,000 jobs added in December coming from government positions. In 2023, the government added an average of 56,000 jobs per month, more than double the 2022 average.

When asked if that trend will continue to support the labor market in 2024, Biden’s top economic advisor told Fortune that “it's a hard corner to look around.”

“I do think that in an economy that's kind of hitting a more normal stride…that tends to support solid growth in public sector employment—in teaching and some of the public health areas,” Bernstein said, however, adding: “So I suspect those numbers will continue to be robust.”

The pros fear good news is bad news for markets—again

While the strong jobs report has the White House celebrating, some investors are now concerned that it could also mean the Federal Reserve’s aggressive interest rate hikes haven’t slowed the economy enough to tame inflation.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, explained that Fed officials may be forced to hold interest rates at a higher level for longer if the labor market remains hot and keeps inflation above the central bank’s 2%.

“Stock and bond markets had been rallying last year on the assumption that the Fed was done raising rates and in fact would be cutting them sooner rather than later and this report throws cold water on those assumptions,” he said.

It’s not just Zaccarelli who is worried about a delay in interest rate cuts. David Royal, chief financial and investment officer at Thrivent, said that the jobs report showed the labor market is still tight and there is “upward pressure on wages” which could help fuel inflation.

“It’s important not to put too much emphasis on a single month’s data. Directionally this jobs report makes it somewhat less likely that we will see as many rate cuts in 2024 as the market is expecting,” he argued. 

And Nationwide’s senior economist Ben Ayers said that the December jobs data report showed that “workers still have the upper hand in the current environment, with strong wage growth and plenty of job opportunities.” And while that’s great news for workers, it also “creates further upside risk for service costs and makes the Fed’s inflation reduction goals that much harder to achieve,” he warned. 

Ed Yardeni, a veteran investment strategist and the founder of Yardeni research, explained why so many investors are cautious after the strong economic data in a Thursday note. “Remember: Good news on the economy is bad news for stocks that discounted sooner-and-more rate cuts this year,” he noted.

Still, President Biden’s top economic advisor told Fortune that he doesn’t buy the “good news is bad news” theory for markets. The CEA chair argued that steady economic growth, consumer spending, and resilient labor markets during the Biden administration will, in the long term, be a net “positive” for both markets and consumers.