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Investments

Yellen: Housing now a headwind for struggling economy

QE to end by fall 2014, cautions on weak job creation

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The housing market has gone from being a tailwind to a full-on headwind, Federal Reserve Chair Janet Yellen told a joint Congressional committee on Wednesday morning.

Yellen blamed most of the weakness in the first quarter, which essentially saw no economic growth, on the weather, and said she expects a rebound in the second quarter.

“With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter,” Yellen told congress members.

The Fed chair said that the slowdown in housing and the weak labor market mean that the recovery is tenuous.

“One cautionary note, though, is that readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching,” she said. “Another risk – domestic in origin – is that the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

Weak job growth and wage stagnation remain challenges for both housing and for the economy in general.

April’s jobs report may have seen a drop in the unemployment rate, but that was driven almost entirely by more than

“While conditions in the labor market have improved appreciably, they are still far from satisfactory,” Yellen said. “(B)oth the share of the labor force that has been unemployed for more than six months and the number of individuals who work part time but would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly—another signal that a substantial amount of slack remains in the labor market.”

Rates will likely remain chained down for the time being – Yellen made no commitments like “about six months” – and she said the Fed will continue the tapering of the monthly program of buying tens of billions in bond purchases, with the end of quantitative easing by the fall of 2014.

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