Treasury Secretary Janet Yellen said Thursday that it appears the economy will avoid falling into a recession as the Federal Reserve works to vanquish too-high inflation.
The remarks came as part of an interview following the latest gross domestic product report. Economic growth accelerated to a 4.9% seasonally adjusted annual rate in the third quarter of this year, up from 2.1% the quarter before — very positive news for the economy.
ECONOMIC GROWTH SURGED IN THIRD QUARTER TO 4.9% RATE DESPITE HIGH INTEREST RATES
Yellen said after the report that the robust pace of economic expansion could be a sign that the Fed has pulled off a “soft landing,” a scenario in which the central bank is able to drive inflation down to its 2% target without causing a recession. Even just months ago, most economists thought the prospect of a soft landing was unlikely, but the consensus has quickly evolved.
“You know, what we have looks like a soft landing with very good outcomes for the U.S. economy,” Yellen told Bloomberg.
Yellen used the opportunity to take a jab at some of the economic projections of the past year. Bloomberg raised eyebrows last year when its economic model curiously put the odds of a recession at 100%.
“Frankly, it's only, it's about a year ago, since I believe a Bloomberg model predicted that by October of 2023, now, namely, that you saw at the odds of recession at 100%. I don't think we have that,” she told the outlet.
The GDP metric is critical to determining a recession.
Typically, two back-to-back quarters of negative GDP growth indicate a recession. The fact that the GDP was positive in the first quarter, the second quarter, and now boomed again in the third quarter bodes well for the economy avoiding a recession, although if the Fed decides to keep rates at their current level for longer, it raises the odds that GDP starts to take a whack.
Still, Yellen anticipated that GDP growth would slow in the coming months as the Fed keeps interest rates higher for longer. Right now, the Fed’s target rate is 5.25% to 5.50%, the highest it has been since the dot-com bubble.
She also noted that the strong GDP growth is buttressed by a healthy employment landscape. The labor market added 336,000 jobs in September, a number that was much better than economists had expected. Employment gains in July and August were also revised upward by a combined 119,000.
“We have solid job creation, a low unemployment rate. Increased engagement in the labor force, labor force participation is strong, more people want to work and inflation is coming down. And you don't really see any sign of recession here,” she said. “I have to say, I've been saying for a long time that I believed there was a path to bring inflation down in the context of a strong labor market.”
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All eyes are now on the coming inflation reports. After a year of declines, the past few months have shown inflation is proving a bit sticky.
New data from September are set to be released on Friday about the Fed’s preferred inflation gauge, the personal consumption expenditures price index. That will be the last inflation report that central bank officials will get to digest before their next monetary policy meeting at the end of the month.