While the latest GDP report showed the US economy contracted again in the second quarter, Treasury Secretary Janet Yellen said there’s no fear that America is currently in a recession.
“That is not what we’re seeing right now when you look at the economy,” she said. “Job creation is continuing, household finances remain strong, consumers are spending and businesses are growing.”
The second-quarter reading of the change in gross domestic product showed a decline of 0.9% from the previous quarter, when the economy shrank by 1.6%. That indicates an economy that is transitioning to more “steady, sustainable growth,” Yellen said. Such a slowdown is expected, considering the strong economic recovery that has occurred since the depths of the pandemic, she said.
“Our economy remains resilient” in its rebound from the pandemic, Yellen added.
However, “unacceptably high” levels of inflation – something not seen at this level since the 1970s and early ’80s – is taking a toll on Americans and their finances, Yellen said.
“I think that the discomfort that households feel, it’s not because of the labor market,” she said. “Some may worry that the … labor market will weaken, but I think the biggest burden that’s weighing on household sentiment is inflation.”
Noting that headwinds and uncertainties persist, including Russia’s war in Ukraine, ongoing supply chain snarls, and global economic instability, Yellen said she sees a path where inflation levels can come down while the job market could maintain some of its strength.
“This is a very unusual situation: We have a slowdown, the labor market remains very tight,” she said. “We could see some mild easing of pressures in the labor market yet [feel like] the labor market is operating in full employment.”
Yellen’s comments about the strength of the economy came on the heels of similar sentiment from analysts, policymakers and other economists.
Moody’s Analytics chief economist Mark Zandi told CNN that while the US economy is vulnerable to sinking into a recession, that hasn’t happened yet.
“This is a slowdown. We’re not in recession, certainly not during the first half of this year,” Zandi said. “We created way too many jobs.”
However, the risk of a recession in the near future is elevated, he said, pegging the risk of a recession over the next 12 months at roughly 50/50. “We need to catch a break here to avoid recession. We do need a bit of luck.”
Recessions typically involve surging unemployment across the economy – but the unemployment rate has been at 3.6%, near historic lows, for four straight months. In the current economy, a recession would translate to a loss of 3 million to 4 million jobs, Zandi said.
The Federal Reserve and the White House have both cited surging inflation as their number-one challenge. The Fed on Wednesday approved another supersized rate hike in its battle to bring down rising prices, with Fed chair Jerome Powell also saying he does not consider the economy to be in a recession.
President Joe Biden on Thursday touted the Inflation Reduction Act, a bipartisan agreement to fund initiatives such as health care and clean energy. Those spending efforts will help to lower inflationary pressures, Biden said, further bolstering the economy.
CNN Business’ Matt Egan contributed to this report.