Appearing before the U.S. Senate Banking Committee hearing Thursday, Federal Reserve Chief Janet Yellen told lawmakers that a possible factor on the current weak economic data could be the recent intense winter storms. She said data about housing, jobs, industrial production and retail sales proved disappointing and commented “I think it’s clear that unseasonably cold weather has played some role in much of that.” This is Yellen’s first appearance in the Senate after taking over the reign of the Fed last Feb. 1.
However, Janet Yellen also explained the need to get a firmer grasp of the data that will allow them to determine if the weak economic performance can also be explained by other factors. The unusually cold weather is blamed for many stores shutting down as well as preventing companies from actively hiring workers compared to the previous months.
The Fed will continue to monitor the data and determine if this will impact its current monetary policies specifically with regard to the tapering of the asset-purchase program. Yellen also made clear during the hearing that the U.S. economy is still steady on its track without any loss of momentum toward recovery despite the weak data reported.
The Fed Chairman also mentioned that the unemployment rate of 6.6 percent is already above the projected 6.5 percent level set by the Fed. This may already indicate the need to raise interest rates which right now is basically near zero. The unemployment rate can partially be explained by more Americans dropping out of the job market rather than the inability to look for a job, Yellen added. The January employment data showed that there were only 113,000 new jobs added for the month, which is below what the economic regulators have forecasted.
Yellen also explained that “There are many different views on the committee about what the right way is to cast forward guidance and this is something that we have been debating for a long time.” It is in this aspect that the Fed will also consider the current inflation rate, which is still below 2 percent, and this might still prevent interest rates from being raised.
The Fed has also recently trimmed down its bond purchases to a rate of $10 billion a month and just targeting bond purchases to about $65 billion per month. To this end, Janet Yellen said that the Fed will still push through with the tapering until the end of the year. “If there’s a significant change in the outlook, certainly we would be open to reconsidering [the stimulus tapering], but I wouldn’t want to jump to conclusions here.” The Fed chief added.
The current Fed chief’s policies are generally anchored from her predecessor, Ben Bernanke, and see no reason for deviating from it. Bernanke in his tenure as the Fed Chairman focused on helping the job market. Yellen agreed to the forecasts of the Federal Open Market Committee which says that economic growth will continue on a moderate pace.
With regard to the online currency Bitcoin, she said, the Federal Reserve has no authority to regulate or supervise the operation of Bitcoin. This concern came after a crisis where Bitcoin customers feared a $400 million theft.
Whether the current weak economic data can be attributed to the intense winter storms, Federal Reserve chief Janet Yellen is still expected to provide more intensive data analysis and policy recommendations.
By Roberto I. Belda