Economic growth took a pause in the first three months of the year because of the harsh winter weather but is expected to pick up swiftly for the remainder of the year, Federal Reserve Chair Janet Yellen told lawmakers Wednesday.
Testifying before the Joint Economic Committee of Congress, Yellen said the anemic growth rate in the first quarter of 2014 was due to “transitory factors” and data shows that spending and production have rebounded.
Yellen added that “I expect economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent.”
Threats to the Fed’s forecast identified by Yellen included Russia’s standoff of with neighbor Ukraine, which threatens to spill over and hurt Europe’s economy, and growing financial strains in several large developing nations.
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“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,” Yellen said.
Earlier in her testimony, the Fed chair had warned that the slowdown in the housing sector “will bear watching” to determine if it is more than a pause in activity. Single-family home sales in March were 7.3 percent below the pace of March 2013, the National Association of Realtors reported last month.
Republicans pressed Yellen on the Fed’s policy that’s kept the central bank’s benchmark lending rate at near zero since December 2008. They argued that these low rates. combined with controversial purchases of mortgage and government bonds, have helped mask the true threat from the nation’s debt and deficits and could spark high inflation as the Fed withdraws its stimulus efforts.
“I do believe we have the tools, and absolutely the will and determination,” Yellen responded, confident that the Fed will recognize changing conditions in the economy in real time and withdraw its support before inflation ignites.