Weather seems to blame for U.S. slowdown, Fed's Yellen says

Thu Feb 27, 2014 7:08pm EST
 
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By Jonathan Spicer and Krista Hughes

(Reuters) - Unusually harsh winter weather appears to be behind recent signs of weakness in the U.S. economy, Federal Reserve Chair Janet Yellen said on Thursday, suggesting the central bank was poised to press forward in ratcheting back its stimulus.

Testifying to the Senate Banking Committee, Yellen said the Fed would watch carefully to ensure weather was indeed the culprit, but she reiterated that it would take a "significant change" to the economy's prospects for the Fed to put plans to wind down its bond-buying program on hold.

Heavy snowstorms and cold snaps have hit U.S. employment, retail sales and manufacturing. The world's largest economy added fewer than 200,000 jobs combined in December and January, well below expectations. Some investors think the Fed could alter its plans if a report on February hiring next week shows similar weakness.

"It's really quite a range of data that has been soft recently. I think it's clear that ... unseasonably cold weather has played some role in much of that," Yellen, the Fed's former vice chair who took the reins on February 1, told lawmakers.

"What we ... will be doing in the weeks ahead is to try 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, are due to a softer outlook," she said.

After more than five years of ultra easy monetary policy in the wake of the 2007-2009 recession, the Fed is taking the first small steps towards a more normal footing. It trimmed its bond buying by $10 billion in each of the past two months, and it expects to raise interest rates some time next year as long as the economy continues to improve.

Yellen reiterated her concerns about possible asset price bubbles, and suggested the Fed would move to a more qualitative description of when it plans to finally raise rates.

But her most revealing comments were on the bond purchases, which she said the Fed still intended to end sometime in the fall, although they were not on a "preset course."   Continued...

 
U.S. Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking Housing and Urban Affairs Committee on Capitol Hill in Washington February 27, 2014. REUTERS/Gary Cameron