Yellen: Economy Isn’t Bad, Just the Weather

It's nice to know that all of the recent snow hasn't chilled Janet Yellen's perspective on the U.S. economy.

Testifying Feb. 27 before the U.S. Senate Banking Committee, Federal Reserve chairwoman Janet Yellen spoke on much of the same material as she did when she testified before the House Financial Services Committee on Feb. 11 (for a review of that, click here). Yet, while the material delivered was similar to previous testimony, the tenor of the message was more focused on the prospects of the U.S. economy. 

In the wake of the bitter cold Yellen noted that a portion of the recent soft economic data "may reflect adverse weather conditions," though she went on to say that it is unclear necessarily how much the weather is to blame. At this point, she says it is enough to look forward in the next several months to fully recognize if and by how much the economy will be affected.

Prospects for future growth are still positive though. Although the economy is far from completely stable, Yellen is confident that it will normalize within several years if it continues its recovery.

Touching on other topics

Though her testimony dealt mostly with the state of the economy and how it was affected by the weather, the Fed chairwoman also touched on several other topics.

Tapering

The Fed will continue its tapering program, says Yellen. While a lackluster January may cause the Federal Reserve to revisit its approach in the long term, Yellen says the organization would not "jump to conclusions." 

Yet there is concern that trustworthy data may not be collectible until April. With an initially slow jobs report, especially in construction and manufacturing, some fear that a delay in unaffected data will also delay any potential responses to any negative jobs trends. 

Unemployment

Last week's testimony also marked a first for the new Fed chairwoman.

For the first time since succeeding former chair Ben Bernanke, Yellen has moved away from her usual stance on unemployment. As she notes herself, falling unemployment is not coeval with a strengthening economy. And with the unemployment rate falling to 6.6% as of January, Yellen's belief in a 6.5% unemployment threshold for raising interest rates is no longer tenable. Seeking more qualitative data before moving interest rates positively, Yellen is adamant that the economy, though recovering, is weaker than desired. 

Bitcoin

The increased usage of this crypto-currency has recently raised concerns by policymakers afraid of a new unregulated money supply. Unfortunately for the U.S. Senate, Yellen is currently unable to do anything to combat these fears. Given the lack of connection between U.S. banking systems and the upstart currency, the Fed has little authority to "regulate or supervise" any Bitcoin-derived system.

The business takeaway

The U.S. economy is in decent shape, all things considered. Despite a very snowy weather and a market that seems to be in hibernation, markets are improving. Coupling this data with Yellen's testimony, the U.S. economy seems poised to expand in a way consistent with previous projections. 

Even the stock market seems optimistic, with the S&P closing at a record high.

What this positive surge of feeling means is that the Fed will not likely change its monetary policy in the coming months. This may change if February and March job reports are revealed to be similar to January's anemic numbers, but this seems unlikely. For now the Fed has things under control.

That is, if the weather holds.

The next step for you

Regardless of where the economy is heading in the short term, it's critical to avoid the tendency to be impatient with the market. The best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2863344, ~/Articles/ArticleHandler.aspx, 12/22/2014 10:53:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement