US Treasury Secretary Janet Yellen on Monday sought to dispel fears of an upcoming recession, citing the robust labor market which saw a record-breaking 500,000 jobs added in January, as unemployment fell to its lowest rate in 50 years. “What I see is a path in which inflation is declining significantly and the economy is remaining strong,” Yellen told ABC’s Good Morning America.
The Treasury secretary also urged Congress to raise the debt ceiling without delay, warning that not doing so would have catastrophic economic and financial consequences. “Every responsible member of Congress must agree to raise the debt ceiling,” Yellen said.
However, some economists are not as confident that a recession can be avoided, pointing to a leading indicator which suggests that financial conditions are about to tighten for corporations. As the Federal Reserve began to hike rates a year ago, lending conditions tightened, creating a lag effect which has just begun to be felt.
Yellen urged Congress to raise the debt limit without conditions, and warned of the consequences of waiting until the last minute. “The solution is simple: Congress must vote to raise or suspend the debt limit,” Yellen said.
The US Treasury Secretary also stated that the economy is “strong and resilient,” and capable of sustaining a robust labor market and declining inflation. “We have a strong and resilient economy,” Yellen told ABC’s George Stephanopolous.
Over the past two years, Yellen noted, the US has worked to ease supply chain pressures, including funding pop-up container yards and moving several ports to 24/7 operations.
Despite the positive outlook, Yellen cautioned against using the debt limit as a bargaining chip, reiterating the economic catastrophe that would result should the US default.
Overall, Yellen remains confident that a recession is avoidable, but economists will be closely watching the effects of the lag in lending standards. Only time will tell if Yellen’s optimism proves correct.
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