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Yellen: Fed monitoring recent weaker economic data

Federal Reserve Chair Janet Yellen testifies Thursday on Capitol Hill in Washington before the Senate Banking Committee to deliver a semiannual  report.

Associated Press

Federal Reserve Chair Janet Yellen testifies Thursday on Capitol Hill in Washington before the Senate Banking Committee to deliver a semiannual report.

WASHINGTON — Federal Reserve Chair Janet Yellen noted Thursday that recent economic data have pointed to weaker-than-expected gains in consumer spending and job growth. She said the Fed will be watching to see whether the slowdown proves only a temporary blip caused by severe winter weather.

"We have seen quite a bit of soft data over the last month or six weeks," Yellen said, citing job growth, housing, retail sales and industrial production.

She said the Fed needs to "get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to a softer outlook."

In her remarks to the Senate Banking Committee, Yellen repeated the Fed's previous assurances that its pullback in its bond purchases is "not on a preset course" and could be modified if there was a "significant change" in the Fed's outlook. The Fed is gradually reducing its monthly bond purchases, which have been intended to keep long-term loan rates low to encourage spending and growth.

Yellen said that while she was open to adjusting the pace of the Fed's reductions in bond purchases, "I wouldn't want to jump to conclusions" that such a change will be needed.

In prepared testimony she gave two weeks ago to a House committee and on Thursday to the Senate panel, Yellen said the job market's recovery is "far from complete" and that she expects Fed policies to favor low interest rates "for quite some time."

Most economists say they expect the Fed to stick to steady reductions in bond purchases unless the economy significantly weakens in coming months.

"The market is hopeful that they can count on her not to be too aggressive in tapering bond purchases," said David Jones, chief economist at DMJ Advisors. "But in essence, she said she was not going to deviate from the policy course that has been set in terms of reductions in bond purchases."

Yellen's appearance Thursday completed her first twice-a-year report to Congress since becoming Fed chair this month. Her Senate appearance had been postponed by a snowstorm that shut federal offices in Washington on Feb. 13.

In both her House and Senate appearances, Yellen sought to emphasize policy continuity with her predecessor, Ben Bernanke, who stepped down last month after eight years as chairman. Yellen said that she, like Bernanke, believes the economy is strengthening enough for the Fed to gradually scale back its bond purchases.

The Fed has cut the pace of its purchases at both its most recent meetings. It reduced the original $85 billion monthly pace in December and again in January in $10 billion steps to a current level of $65 billion.

Many economists think that as long as the economy keeps improving, the Fed will keep cutting the bond purchases by $10 billion at each meeting this year until ending the program in December.

The Fed has stressed that it's standing by a plan to keep a key short-term rate at a record low near zero for an extended period.

At the past two meetings, it has said short-term rates will likely remain low "well past" the time unemployment drops below 6.5 percent. The unemployment rate is now 6.6 percent.

The Fed has held its benchmark for short-term rates near zero since December 2008.

Yellen: Fed monitoring recent weaker economic data 02/27/14 [Last modified: Thursday, February 27, 2014 7:59pm]
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