Janet Yellen mentioned she would not see indicators of a recession, however Nobel Laureate Paul Krugman argues the worst is but to come back

U.S. GDP grew 2.6% within the third quarter, marking a turnaround after two consecutive quarters of contraction to begin the 12 months.

“What we’re seeing proper now could be strong progress this quarter,” Yellen advised CNN. “We now have a really sturdy labor market. I don’t see indicators of a recession on this economic system at this level.”

However whereas Yellen believes that the newest GDP numbers are proof of power, and an indication that the Federal Reserve’s efforts to cut back inflation usually are not considerably hurting the economic system, different high economists argue that the figures are deceptive and complain that the Fed could also be overdoing it with rate of interest hikes.

“The U.S. economic system has continued to weaken, however as soon as once more, the top-line GDP quantity is hiding a few of this weak point,” Raymond James chief economist, Eugenio Alemán, advised Fortune, pointing to the truth that GDP was boosted by 2.8 share factors because of the shrinking commerce deficit final quarter.

Comerica Financial institution’s chief economist, Invoice Adams, defined that “a smaller commerce deficit provides to GDP as a result of it means extra American spending is on items and providers produced right here versus in different international locations.”

Nobel Laureate Paul Krugman additionally argued on Thursday that whereas the U.S. might not at present be in a recession, there’s proof that the economic system will shrink from right here.

“Whereas this report made all of the individuals who screamed ‘recession!’ look as silly and partisan as they have been, it was not, for those who look underneath the hood, an indication that the worst is over,” he wrote on  Twitter. “It suggests, at the very least to me, that there’s a variety of contraction nonetheless within the pipeline.”

In a separate tweet, Krugman, like Alemán, argued that the shrinking commerce deficit was the principle driver of the constructive GDP determine, and that the sturdy greenback ought to scale back the advantage of the commerce deficit in coming quarters as U.S. producers develop into much less aggressive on the worldwide stage.

Whereas the greenback has been outperforming most currencies all year long, Krugman famous that there are “lengthy lags within the results of alternate charges on commerce,” which implies that the commerce deficit will probably be a “vital drag going ahead.”

Krugman added that the Federal Reserve’s rate of interest hikes additionally imply that the housing market will proceed to gradual, which ought to scale back GDP.

“Mortgage functions are down 70%, so a big housing stoop is already baked in. If it hasn’t proven up but, simply wait,” he wrote.

Yellen, alternatively, argued that the U.S. economic system remains to be in a powerful place, with unemployment at a 50-year low of simply 3.5%, and shopper spending proving to be resilient. 

Regardless of inflation and poor earnings from retailers like Amazon, shopper spending elevated 0.6% in September, based on the Bureau of Financial evaluation.

Yellen additionally famous that U.S. households are in a powerful place in comparison with their European friends, and that U.S. banks are “properly capitalized,” which suggests they’re higher ready to deal with an financial slowdown.

“In the event you look around the globe, there are a variety of economies which are actually struggling not solely from excessive inflation however very weak financial efficiency, and the USA stands out,” she mentioned.

Yellen went on to face by the insurance policies of the Biden Administration, arguing that they helped allow the spectacular restoration of the labor market post-COVID in comparison with different developed economies.

“There have been a number of issues that we may have had, and difficulties many American households may have confronted,” she mentioned. “These are issues we don’t have, due to what the Biden administration has achieved. So, typically one doesn’t get credit score for issues that don’t exist.”

Nonetheless, Yellen has beforehand admitted that the Federal Reserve will want each “nice talent” and “good luck” to defeat inflation with out sparking a recession.

Join the Fortune Options e mail checklist so that you don’t miss our greatest options, unique interviews, and investigations.