The US economy is 'doing very well' and there aren't signs of instability in financial markets despite intense volatility, Treasury Secretary Janet Yellen says

• The US economy is "doing very well" and there aren't signs of instability in financial markets, Janet Yellen said.
• Yellen pointed to the strong labor market, and added she believed inflation could come down without hammering jobs.

Despite the volatility rocking stocks and bonds, the US economy is still "doing very well" and financial markets aren't showing signs of instability, according to Treasury Secretary Janet Yellen.

"From the perspective of the United States, I think the United States is doing very well," Yellen said in an interview with CNBC on Wednesday, pointing to strength in the labor market. The US added 263,000 new jobs in September – above estimates of 250,000.

"That shows we have a very resilient economy. An economy of course that's slowing, which is something we expected fully after a strong recovery [from the pandemic]," she said.

And while inflation is still cruising high above the Fed's 2% target, Yellen said she believed prices could be tamed without hammering the job market. She pointed to the fact that household balance sheets are strong, and corporate debt is at manageable levels even in the face of rising rates—factors that could buffer the economy from future rate hikes.

But Yellen's words run contrary to what other economists have said. Mohamed El-Erian has been a loud critic of the Fed's delayed response to inflation, and said the US now faced a "very high probability of a damaging recession." JPMorgan CEO Jamie Dimon this week emphasized the "serious" nature of the economy, warning that a recession could hit the US in six to nine months and send stocks plunging another 20%.

"Look, we're going to see, and we can't be sure," Yellen said in response to Dimon's recession call.

El-Erian has also warned markets of "unsettling volatility," pointing to turmoil in the bond market. That's a sign that the market is struggling from lower liquidity as the Fed begins to tighten its balance sheet, after doubling it to $8.9 trillion in 2021 during the pandemic. It's also a sign of dysfunction in the Treasury market, which could spread from the wide impact of Treasurys on the overall financial system.

But Yellen dismissed signs of instability, noting that most of the volatility has been fueled by external shocks, such as the energy shortage stemming from Russia's war with Ukraine, and OPEC's recent decision to slash oil production by 2 million barrels a day. That could send energy prices skyrocketing, fueling inflation even further.

"We really haven't seen signs of financial instability in the United States and our financial markets continue to function well. We're not seeing signs of deleveraging … While there's some concern about liquidity in markets, I don't think we've see anything that rises to the level of a serious concern," she said.