Weather to blame for economic slowdown

Weather to blame for economic slowdown

TESTIFY: Testifying to the Senate Banking Committee, Janet 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. Photo: Reuters

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.”

Asked by New York Senator Charles Schumer if the Fed would consider changing the rate of taper if weather turned out not to be the main factor in recent economic weakness, Yellen said the central bank would be open to reconsidering if the outlook changed significantly.

“But I wouldn’t want to jump to conclusions here,” she said.

The Fed has held rates near zero since late-2008 and it has pumped up its balance sheet to more than $4 trillion with its asset purchases. It is currently buying bonds at a pace of $65 billion per month, and will decide its next move at a meeting on March 18-19.

Reaction in financial markets was muted, with U.S. stocks gaining ground and the dollar drifting lower against the euro.

“I think the prevailing wisdom remains that there is a high hurdle to deviating from the current $10 billion per meeting taper trajectory,” Stephen Stanley, chief economist at Pierson Securities, wrote to clients.


Senators on the committee also asked about financial regulation and the possibility that the accommodative monetary policy could inflate asset-price bubbles.

Yellen acknowledged that such low borrowing costs “can give rise to behavior that poses threats to financial stability.”

“Therefore we need to be looking at that very carefully and we are doing so in a very thorough way,” she said.

The debate is heating up over whether the Fed should stand ready to raise rates earlier than expected to head off risky behavior that could imperil financial stability.

The central bank is monitoring the growth of credit and leverage for “potential worrisome trends,” Yellen said.

“I would say at this stage I don’t see concerns, but there are pockets of a few things that we’ve identified that do concern us,” she said.

“For example, underwriting standards and leveraged lending clearly appear to be deteriorating. We have addressed that with supervisory guidance and special exams and will continue to be very vigilant in that area.”

Another challenge on the Fed’s horizon is adjusting a policy promise, repeated last month, to keep rates near zero until well after the U.S. jobless rate falls below 6.5 percent. Unemployment was very close to that threshold at 6.6 percent in January, so Fed policymakers have suggested they want to find another way to telegraph their intentions.

“There is no hard and fast rule about what unemployment rate constitutes full employment and we need to consider a broad range of indicators,” Yellen said.

“Many members of the committee have emphasized this point and it’s one I agree with,” she added. “It moves in the direction of qualitative guidance.”

(Additional reporting by Lucia Mutikani, Ann Saphir, Elvina Nawaguna and Bill Trott; Editing by Chris Reese, Tim Ahmann and Andrea Ricci)

Recent Headlines

in Entertainment

Today in entertainment history: March 30

FILE - In this March 2, 2014 file photo, Bono arrives at the Oscars at the Dolby Theatre in Los Angeles. A New York City doctor says U2 singer Bono suffered multiple fractures and had to have two surgeries after his weekend bicycle accident. Orthopedic trauma surgeon Dr. Dean Lorich says Bono underwent a five-hour surgery on his elbow in which three plates and 18 screws were inserted on Sunday night. Bono had another surgery to repair a fracture to his left pinkie on Monday. Lorich says Bono will need therapy but a full recovery is expected.

A look back at some of Hollywood's most memorable headlines.

in Entertainment

This weekend in entertainment history


A look back on some of Hollywood's most memorable headlines.

in National

Amanda Knox murder conviction overturned

FILE - In this Jan. 31, 2014, file photo, Amanda Knox prepares to leave the set following a television interview in New York. Knox is engaged to Colin Sutherland, a musician who recently moved to Seattle from New York, a person close to the Knox family confirmed for The Associated Press. Knox’s murder conviction in the 2007 stabbing of her roommate has been reinstated by an Italian court, but the former college exchange student maintains her innocence and vows she won’t willingly go back to Italy. Both Knox and Sutherland are 27. No wedding date had been set.

Italy's highest court has overturned the murder conviction against Amanda Knox, bringing to a definitive end the high-profile case.

in National

Time for Iran to make tough decisions in nuclear talks

In this March 26, 2015, photo, Iranian Foreign Minister Mohammad Javad Zarif, center, leaves a meeting with U.S. Secretary of State John Kerry and other U.S. officials at a hotel in Lausanne, Switzerland. U.S. and Iranian diplomats gather at a Baroque palace in Europe, a historic nuclear agreement within reach. Over Iraq’s deserts, their militaries fight a common foe. Leaders in Washington and Tehran, capitals once a million miles from each other in ideological terms, wrestle for the first time in decades with the notion of a rapprochement.

Six world powers and Iran move closer to a deal, but there are still major disagreements.

in Sports

This week’s top sports shots


A look at some of the biggest plays and best photos in sports this week.