Treasury Secretary Janet Yellen believes the economy is not in recession and the latest gross domestic product numbers prove it.
US GDP grew 2.6% in the third quarter, marking a reversal after two consecutive quarters of decline earlier in the year.
“What we’re seeing right now is solid growth this quarter,” Yellen told CNN. “We have a very strong job market. I see no signs of a recession in this economy right now.”
But while Yellen believes the latest GDP numbers are a show of strength and a sign that the Federal Reserve’s efforts to curb inflation aren’t significantly hurting the economy, other top economists argue the numbers are misleading , and complain that the Fed might overdo it with rate hikes.
“The US economy has continued to weaken, but once again the GDP number hides some of this weakness,” Eugenio Alemán, chief economist at Raymond James, told Fortune, noting the fact that GDP grew by 2.8 percentage points increased due to the shrinking trade deficit in the last quarter.
Comerica Bank chief economist Bill Adams explained that “a smaller trade deficit increases GDP because it means Americans spend more on goods and services produced here compared to other countries.”
Nobel laureate Paul Krugman also argued Thursday that while the US is not currently in a recession, there are signs the economy will contract from here.
“During this report, all the people shouting ‘Recession!’ As stupid and partisan as they look, looking under the hood wasn’t a sign the worst was over,” he wrote Twitter. “To me, at least, that suggests there’s still a lot of contraction in the pipeline.”
in one separate tweetKrugman, like Alemán, argued that the shrinking trade deficit was the main reason for the positive GDP numbers and that the strong dollar is likely to reduce the benefit of the trade deficit in the coming quarters as US producers become less competitive on the global stage.
While the dollar has outperformed most currencies year-round, Krugman noted that there are “long lags in the impact of exchange rates on trade,” meaning the trade deficit is likely to be a “significant drag going forward.” .
Krugman added that the Federal Reserve’s rate hikes also mean the housing market will continue to slow, which is likely to reduce GDP.
“Mortgage applications are down 70%, so we’ve already got a major housing crisis. If she hasn’t shown up yet, just wait,” he said wrote.
Yellen, on the other hand, argued that the US economy is still in a strong position, with an unemployment rate of just 3.5% at a 50-year low and consumption proving resilient.
Despite inflation and poor earnings from retailers like Amazon, consumer spending rose 0.6% in September, according to the Bureau of Economic Analysis.
Yellen also noted that US households are in a strong position relative to their European peers and that US banks are “well capitalized,” meaning they are better prepared to deal with an economic slowdown .
“If you look around the world, there are many economies that are really suffering, not only from high inflation but also from very weak economic performance, and the United States stands out,” she said.
Yellen remained committed to Biden administration policies, arguing that they helped facilitate the impressive post-COVID job market recovery compared to other developed economies.
“There were several issues that we could have faced and difficulties that many American families could have faced,” she said. “These are issues that we don’t have because of what the Biden administration has done. So you often don’t get any recognition for problems that don’t exist.”
Still, Yellen has previously admitted that the Federal Reserve will need both “great skill” and “a lot of luck” to beat inflation without triggering a recession.
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews and research.