Weather seems to blame for U.S. slowdown, Fed's Yellen says
Federal Reserve Chair Janet Yellen testifies on Capitol Hill in Washington, Thursday, Feb. 27, 2014, before the Senate Banking Committee to deliver the semiannual Monetary Policy Report to Congress. Yellen noted that some 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. (AP Photo/J. Scott Applewhite)
Workers clear newly-fallen snow from a street, Tuesday, Feb. 18, 2014, in Trenton, N.J., after a quick-moving storm brought several inches of snow as well as rare "thundersnow" to parts of the winter-weary East Coast. (AP Photo/Mel Evans)
Workers take a lunch break from shoveling snow near the Statehouse in Tuesday, Feb. 18, 2014, in Trenton, N.J., after a quick-moving storm brought several inches of snow as well as rare "thundersnow" to parts of the winter-weary East Coast. (AP Photo/Mel Evans)
NEW YORK - FEBRUARY 13: Kirby, a wheaten terrier, is walked by its owner during a snow storm February 13, 2013 in the Brooklyn borough of New York. In what is turning out to be one of the snowiest winter's in recent memory for New York City and ouch of the East Coast, Thursday's weather is expected to bring a wintery mix of sleet and snow with total accumulation of 6 to 8 inches of snow before ending early Friday morning. (Photo by Robert Nickelsberg/Getty Images)
NEW YORK - FEBRUARY 13: A worker with the New York City Parks and Recreation Department uses a snowblower along the Promenade during a snow storm February 13, 2013 in the Brooklyn borough of New York. In what is turning out to be one of the snowiest winter's in recent memory for New York City and ouch of the East Coast, Thursday's weather is expected to bring a wintery mix of sleet and snow with total accumulation of 6 to 8 inches of snow before ending early Friday morning. (Photo by Robert Nickelsberg/Getty Images)
A worker shovels snow into a front loader on the plaza in front of the Barclays Center during a major snowstorm that dumped a foot of snow on the city, Tuesday, Jan. 21, 2014 in New York. (AP Photo/Kathy Willens)
The sun illuminates windblown snow as a man walks under elevated train tracks, Wednesday, Jan. 22, 2014, in Philadelphia. A winter storm stretched from Kentucky to New England and hit hardest along the heavily populated Interstate 95 corridor between Philadelphia and Boston. (AP Photo/Matt Rourke)
Young people uses a mattress as a sled to slide down the steps of the Philadelphia Museum of Art Wednesday, Jan. 22, 2014, in Philadelphia. A winter storm stretched from Kentucky to New England and hit hardest along the heavily populated Interstate 95 corridor between Philadelphia and Boston. (AP Photo/Matt Rourke)
Workers clear snow Wednesday, Jan. 22, 2014, in Trenton, N.J., after a swirling storm Tuesday left frigid temperatures and more than a foot of snow in some areas. The storm clobbered the mid-Atlantic and the urban Northeast, grounding thousands of flights, closing government offices in the nation's capital and giving students another day off from school. The storm stretched 1,000 miles between Kentucky and Massachusetts. (AP Photo/Mel Evans)
A man shovels snow off his car in the Brooklyn borough of New York, Wednesday, Jan. 22, 2014. A winter storm stretched from Kentucky to New England and hit hardest along the heavily populated Interstate 95 corridor between Philadelphia and Boston. Snow began falling at midmorning Tuesday in Philadelphia and dumped as much as 14 inches by Wednesday morning, with New York seeing almost as much. (AP Photo/Seth Wenig)
Travelers walk in the economic parking lot at O'Hare International Airport in Chicago on Sunday, Jan. 5, 2014. The storm hitting the Northeast U.S. is forcing dozens of airports to delay and cancel flights. Sunday night temperatures will drastically drop to about minus 20 degrees. (AP Photo/Nam Y. Huh)
Jan Solie, an over the road semi-truck driver from Augusta, Wis., checks her stuck truck in Grand Forks, ND, during a blizzard Thursday, Jan. 16, 2014, that made travel treacherous around the region and prompted the shutdown of roads, public schools and even universities. (AP Photo/Jackie Lorentz)
A man walks during a winter snowstorm Tuesday, Jan. 21, 2014, in Philadelphia. A swirling storm with the potential for more than a foot of snow clobbered the mid-Atlantic and the urban Northeast on Tuesday, grounding thousands of flights, closing government offices in the nation's capital and making a mess of the evening commute. (AP Photo/Matt Rourke)
A woman stands at the entrance of a building during a winter snowstorm Tuesday, Jan. 21, 2014, in Philadelphia. A storm is sweeping across the Mid-Atlantic and New England. The National Weather Service said the storm could bring 8 to 12 inches of snow to Philadelphia and New York City, and more than a foot in Boston. (AP Photo/Matt Rourke)
Tourists seeks shelter from the falling snow by walking close to the Vietnam Veterans Memorial in Washington, Tuesday, Jan. 21, 2014. A storm front is expected to leave five to eight inches of snow in it's wake as it passes through the Nations's Capitol. (AP Photo/J. David Ake)
Cecy Wang, right, clears snow off her car as Samuel Scott, left, shovels a sidewalk Tuesday, Jan. 7, 2014, in St. Louis. As Missourians muddled through another frigid day Tuesday, the worst cold snap in nearly two decades was about to come to an end but many roads remained partly snow-covered two days after a winter storm dumped several inches of snow. (AP Photo/Jeff Roberson)
A man runs back to his truck in blowing and falling snow as a strong winter storm moves through the Midwest Sunday, Jan. 5, 2014, in Springfield, Ill. Temperatures not seen in years are likely to set records in the coming days across the Midwest, Northeast and South, creating dangerous travel conditions and prompting church and school closures. (AP Photo/Seth Perlman)
A man wears a face mask and heavy clothes while walking through downtown Springfield, Ill., in blowing and falling snow as a strong winter storm moves through the Midwest Sunday, Jan. 5, 2014. Temperatures not seen in years are likely to set records in the coming days across the Midwest, Northeast and South, creating dangerous travel conditions and prompting church and school closures. (AP Photo/Seth Perlman)
US Postal Service letter carrier Danny Kim clears snow and ice as he climbs on the hood of his mail delivery truck in the parking lot at the U.S. Post Office in Bethesda, Md., Friday, Jan. 3, 2014. Kim said that despite the storm resulting in many closing of local school systems, he and his colleagues were working on an unchanged schedule. A winter storm that swept across the Midwest this week blew through the Northeast and its biggest cities on Friday, producing more than a foot of snow in spots, giving rise to wind gusts that threatened trees and power lines, and leaving bone-chilling cold in its wake. (AP Photo/Charles Dharapak)
A jogger runs on the National Mall, with the Washington Monument in the background, Friday, Jan. 3, 2014, in Washington. After a storm blew through the Washington region overnight, roads are being cleared and many schools systems are closed. The federal government and the District of Columbia government will be open Friday, but workers have the option to take leave or telework. (AP Photo/ Evan Vucci)
An Amtrak train kicks up fresh snow as it speeds southbound on Friday, Jan. 3, 2014, in Schodack Landing, N.Y.
A couple walk with a suitcase on a snow covered parking lot at Newark Liberty International Airport , Friday, Jan. 3, 2014, in Newark, N.J. Airlines cancelled flights early Friday because of the storm conditions. New Jersey Gov. Chris Christie declared state of emergency Thursday, urging residents to stay home. Schools were closed as temperatures reached below 20 degrees with wind-chills below zero in some places. (AP Photo/Julio Cortez)
Pedestrians brave wind and snow as they cross Fifth Avenue, Friday, Jan. 3, 2014, in New York. New York City public schools were closed Friday after up to 7 inches of snow fell by morning in the first snowstorm of the winter. A winter storm slammed into the U.S. Northeast with howling winds and frigid cold, dumping nearly 2 feet (60 centimeters) of snow in some parts and whipping up blizzard-like conditions Friday. (AP Photo/John Minchillo)
Heavy surf breaks over the seawall after a winter storm, Friday, Jan. 3, 2014, in Hampton, N.H. (AP Photo/Jim Cole)
Jack Keefe surfs in the Atlantic Ocean on the coast of Hampton, N.H., after a winter storm kicked up the surf, Friday, Jan. 3, 2014. (AP Photo/Jim Cole)
Cindy Roche of Salisbury, Mass., braces herself on a fence after taking pictures of rough surf at Salisbury Beach Friday, Jan. 3, 2014 in the wake of a winter storm which dumped up 2 feet of snow in some areas north of Boston. (AP Photo/Elise Amendola)
John Breese is bundled against a cold wind as he tows a car that got stuck in the snow after skidding off the road in Yardley, Pa., Friday, Jan. 3, 2014 .The first winter storm of 2014 scattered up to 8 inches in some parts of Pennsylvania. Forecasters warned that gusts of up to 30 mph Friday could bring wind chills to minus 25 degrees, cold enough to cause frostbite in about 30 minutes or less. The National Weather Service said people should dress warmly to avoid hypothermia and cover all exposed skin. (AP Photo/Mel Evans)
Snowmen sit in front of the Capitol in Washington, Friday, Jan. 3, 2014, after a winter snow storm in the nation's capital. After a storm blew through the Washington region overnight, roads are being cleared and many schools systems are closed. The federal government and the District of Columbia government will be open Friday, but workers have the option to take leave or telework. (AP Photo/ Evan Vucci)
A pedestrian walks in the snow on Thursday, Jan. 2, 2014, in Albany, N.Y. Up to 5 inches of snow had fallen in eastern New York early Thursday, but the National Weather Service said some areas from Buffalo to Albany could get up to 12 inches by the time the storm subsides on Friday. (AP Photo/Mike Groll)
A girls gets off her school bus on a snow-covered road during a winter storm on Thursday, Jan. 2, 2014, in Zelienople, Pa. The National Weather Service predicts 2 to 4 inches of snow to fall from the storm in the Pittsburgh area and as much as 4 to 6 inches in the areas like this north of the city. (AP Photo/Keith Srakocic)
A pedestrian walks through the snow outside the state Capitol on Thursday, Jan. 2, 2014, in Albany, N.Y. Up to 5 inches of snow have fallen in eastern New York early Thursday, but the National Weather Service said some areas from Buffalo to Albany could get up to 12 inches by the time the storm subsides on Friday. (AP Photo/Mike Groll)
BACK TO SLIDE
(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 economyadded 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)