Noting ‘soft’ data, Fed chief waiting to see whether weather played role

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.

Yellen’s comments gave encouragement to Wall Street. Investors read the remarks as offering at least a hint that the Fed might slow or suspend a pullback in its economic stimulus if the economy faltered.

“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.

Still, investors took heart from her comment that the Fed was concerned about the weaker economic data and watching to see if the slowdown was temporary or persistent.

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 its plan for a steady reduction 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.”

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.