Yellen sees path to avoiding U.S. recession

STORY: YELLEN: “Really, we have a strong and resilient economy…”

Predicting a so-called soft landing for the U.S. economy, Treasury Secretary Janet Yellen on Monday said she saw a path forward in which the country avoids a recession, even as inflation comes down significantly.

Fueling her optimism: a red hot labor market, which is producing hundreds of thousands of new jobs a month.

Yellen's comments came on ABC's Good Morning America.

“You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years. So what I see is a path in which inflation is declining significantly and the economy is remaining strong.”

While Yellen acknowledged that inflation remained too high, she noted its decline over the past six months and said it could drop significantly further given measures adopted by the Biden administration, including steps to reduce the cost of gasoline and prescription drugs.

The U.S. Federal Reserve has also been on an urgent campaign to bring price pressures under control, raising interest rates aggressively over the past year in an attempt bring down runaway inflation.

Despite the surge in rates, which has lead to concerns about a possible recession, U.S. Labor Department data released last week showed job growth accelerated sharply in January, with nonfarm payrolls up by 517,000 jobs and the unemployment rate dropping to a 53-1/2-year low of 3.4%.

But all bets are off on the economy if Congress fails to raise the U.S. debt limit, said Yellen, who warned that failure to do so would have grave consequences.

“America has paid all of its bills on time since 1789 and not to do so would produce an economic and financial catastrophe.”

The U.S. government hit its $31.4 trillion debt ceiling in January, prompting the Treasury Department to warn that it may not be able to stave off default past early June.