Yellen Downplays Recession Fears After U.S. Unemployment Reaches 54-Year Low

Topline

U.S. Treasury Secretary Janet Yellen expressed confidence the U.S. can avoid a recession after adding more than 500,000 jobs in January that brought unemployment to a 54-year low, –despite a rising tide of corporate layoffs and Washington’s looming debt limit battle.

Treasury Secretary Janet Yellen (Photo by Kevin Dietsch/Getty Images)

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Key Facts

Yellen sees “a path in which inflation is declining significantly,” after it reached a 40-year high last year, she said on ABC’s Good Morning America Monday, following Labor Department data released Friday that defied economists’ job growth predictions and found unemployment dipped to 3.4%, the lowest level since 1969.

The consumer price index, which refers to the cost of goods and services, dipped 0.1% in December, but rose 6.5% in 2022—a figure Yellen said “remains too high.”

Yellen also renewed her call for Congress to increase the U.S.’ $31.4 trillion debt limit, after the federal government reached the cap last month, prompting the Treasury to deploy “extraordinary measures” to stave off a default, which Yellen said would create “an economic and financial catastrophe.”

Crucial Quote

“America has paid all of its bills on time since 1789, and not to do so would produce an economic and financial catastrophe, and every responsible member of Congress must agree to raise the debt ceiling. It’s something that simply can’t be negotiable,” Yellen said.

Contra

“The quality of jobs available to American workers has declined,” Comerica Bank chief economist Bill Adams told Forbes, referring to job growth in lower-paying industries, such as leisure and hospitality.

Key Background

The better-than-expected January jobs report showed growth across a broad range of industries, including healthcare, government, and professional and business services. Wage growth, however, was in line with expectations, rising about 10 cents, or 0.3%, to $33,03 in January. The report comes amid a campaign by the Federal Reserve to tame inflation by raising interest rates, causing declines in the housing and stock markets and fears of a global recession.

Tangent

Congress is gearing up for a fight over raising the debt ceiling ahead of a June deadline Yellen set last month. Republicans, including House Speaker Kevin McCarthy, are calling for broad spending cuts and a reduction in the federal deficit in exchange for raising the debt limit, but the White House has said it will refuse to negotiate on the issue. McCarthy and President Joe Biden, after meeting for the first time last week on the debt limit, announced they had agreed to preserve Medicare and Social Security spending in negotiations. Republicans have yet to announce a formal proposal for spending cuts, but some, including McCarthy and Rep. Elise Stefanik (R-NY), have floated cuts to progressive-backed military programs, such as diversity and inclusion initiatives and funding for service members to travel to seek abortions.

What To Watch For

The January jobs report, bolsters Biden as he prepares to deliver his third State of the Union address on Tuesday, which is expected to be a precursor to his potential 2024 re-election bid. But Biden faces pessimism among voters about a second term: only 37% of Democrats want him to run again, according to a AP-NORC poll of 1,068 Americans conducted from January 26-30 and released Monday.