Note: As of 11:45 a.m. ET, Federal Reserve Chair Janet Yellen is still speaking to the Senate Banking Committee. Here's a rundown of what she's said so far relevant to the housing industry.
A lot has happened in the mere two weeks and two days since new Federal Reserve Chair Janet Yellen spoke before legislators on Capitol Hill, and she acknowledged she’s already revising how she looks at the Fed’s guidance going forward.
Yellen spoke to the Senate Banking Committee Thursday morning, telling them that the economic outlook over the next several months looks less optimistic than when she spoke to the House Financial Services Committee on Feb. 11.
“Since my appearance before the House committee, a number of data releases have pointed to softer spending than many analysts had expected,” Yellen told the committee. “Part of that softness may reflect adverse weather conditions, but at this point it is difficult to discern how much.”
On the issue of the weather, Yellen said that the Fed needs to get a “handle on” how much the cold weather affected the negative economic indicators that have come out since Feb. 11 including jobs data, retail sales, home building, and manufacturing.
“In the weeks and months ahead, my colleagues and I will be attentive to signals that indicate whether the recovery is progressing in line with our earlier expectations,” Yellen told senators.
Despite these concerns, only “significant change” in the outlook would justify the Fed pulling back from its program of tapering the Fed’s monthly purchases of Treasurys and bonds. The Fed has reduced monthly purchases from $85 billion in December to $65 billion now.
Yellen said that although the official unemployment rate has been declining, largely due to people dropping out of the workforce rather than by job creation, it shouldn’t be the sole measure for Fed guidance.
“Of course, the unemployment rate is not a sufficient statistic to measure the health of the labor market,” Yellen said. “As we go to a fuller consideration of how the labor market is performing, we need to take all of those things into account.”
The next Federal Open Market Committee meeting is scheduled for March 18-19. It will be Yellen’s first time chairing the meeting. It is expected the Fed will reduce its monthly purchases by another $10 billion at that time.
Yellen told senators that these bond purchases – quantitative easing – have aided economic stability and growth, and that the Fed’s policy of keeping interest rates near zero have helped the housing industry, but she could not quantify exactly how it had helped.
Asked if she believed a “single-mandate policy” would better serve the Fed rather than the dual mandate of price stability and full employment, she said definitely no.
“Over this last several years the answer is no. This (dual) mandate has served us quite well,” Yellen said.
“Most central banks also have a dual mandate, she said.