Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.
“Unseasonably cold weather has played some role,” she said in response to a question today from the Senate Banking Committee. “What we need to do, and 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, is due to softer outlook.”
Yellen repeated the Fed’s statements that the central bank intends to reduce asset purchases at a measured pace, and she said in response to a separate question that the bond-buying program was likely to end in the fall.
At the same time, “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”
Yellen’s testimony to the Senate panel, originally scheduled for Feb. 13, was postponed because of a snowstorm, creating an unusual two-week gap between her appearances before the two committees that oversee the central bank. Since her House testimony, weaker-than-forecast data on retailing, manufacturing and home construction have suggested the economy is slowing, in part because of harsh winter weather.
U.S. stocks climbed after the comments. The Standard & Poor’s 500 Index added 0.2 percent to 1,848.78 at 12:17 p.m. in New York after falling 0.2 percent earlier.
Yellen, in the second day of her semi-annual testimony on the economy and monetary policy, also repeated the Fed’s pledge to keep the benchmark interest low at least as long as unemployment stays above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
Policy makers, at their Jan. 28-29 meeting, said they would soon have to modify the year-old commitment, according to minutes released last week.
The jobless rate fell to 6.6 percent last month, even as other indicators showed continued weakness in the labor market. The Federal Open Market Committee (FDTR) debated “the reliability of the unemployment rate as an indicator of overall labor-market conditions,” the minutes showed.
Yellen, 67, declined to say whether the Fed would scrap the unemployment threshold, while also indicating that policy makers can’t rely on the jobless rate alone to assess the condition of the labor market.
Responding to a question, she said that “the unemployment rate is not a sufficient statistic for the state of the labor market. There is no hard and fast rule about what unemployment rate constitutes full employment, and we will need to consider a broad range of indicators.”
Yellen, in her prepared comments, said the recovery in the labor market is “far from complete.” At the same time, “My colleagues on the FOMC and I anticipate that economic activity and employment will expand at a moderate pace this year and next, the unemployment rate will continue to decline toward its longer-run sustainable level, and inflation will move back toward 2 percent over coming years.”
A Feb. 13 report showed that sales at U.S. retailers declined in January by the most since June 2012 amid slower employment and wage growth, along with colder-than-normal temperatures.
Cold weather also weighed on factory production, which unexpectedly declined in January by the most since May 2009.
The jobless rate fell to 6.6 percent in January, prompting San Francisco Fed President John Williams to say Feb. 19 that the central bank should abandon its unemployment threshold for the federal funds rate and switch to qualitative descriptions about progress toward the central bank’s mandate for full employment and stable prices.
Boston Fed President Eric Rosengren said yesterday that there remains “significant slack” in labor markets and called for “a very patient approach” in removing stimulus. Neither Rosengren nor Williams is a voting member of the FOMC this year, though they participate in meetings.
U.S. central bankers trimmed their bond purchases by $10 billion for a second time in January, to a $65 billion monthly pace. The FOMC next meets March 18-19.
“I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level,” Yellen said today.
The 12-month rate of inflation, measured by the personal consumption expenditures price index, has been below the Fed’s 2 percent target every month since May 2012 and rose at a 1.1 percent rate for the 12 months ending December.
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