In her semi-annual report before the Senate banking committee, Yellen said that economic data, particularly on consumer spending, had "softened" since she testified before a House committee two weeks ago.
Some of the weakening, she said, "may be related to adverse weather" but the Fed "will be attentive" to other economic signposts to see if the economy "is progressing in line with our expectations."
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In the House hearing, Yellen said the Fed remained on course to continue tapering its economic stimulus program despite weak job growth in December and January. She suggested much of the slowing appeared to be due to severe winter weather.
Since her testimony on Feb. 11, reports indicated that retail sales slowed significantly in January and measures of the housing recovery have dipped. Economists say that while weather is a factor, other forces, such as rising mortgage rates, are likely also at work.
In an effort to hold down interest rates and spur growth, the Fed is now buying $65 billion monthly in Treasury bonds and mortgage-backed securities after reducing the purchases from $85 billion a month last year. Citing an acceleration in the economy and job gains since the Fed began the purchases in September 2012, Yellen reiterated Thursday that the Fed plans to continue to trim the purchases in "measured steps" through the year.
"If there is a significant change in the outlook, certainly we would be open to reconsidering" that plan, she said. Yellen added that it will take "some years" before the economy returns to normal.
At the same time, some Fed policymakers worry that the Fed's bond purchases are raising the risks of asset bubbles by driving money to riskier, higher-yielding investments.
Yellen on Thursday voiced some c! oncerns that such market froth may be forming. "At this stage, broadly I don't see" asset bubbles "but there are pockets, a few things" that Fed policymakers are monitoring. She cited deteriorating underwriting standards for some loans and rising farmland prices.
Previously, Yellen had downplayed worries about overvalued assets and markets.
Yellen also drew questions about last week's release of 2008 Fed meeting transcripts that showed policymakers failed to immediately grasp the magnitude of the financial crisis even after Lehman Bros. failed and the stock market plunged in September that year. The transcripts indicated that many Fed policymakers thought the economy would continue to grow, and some were more worried about high inflation than recession.
Yellen acknowledged that in September 2008 Fed officials did not foresee the brutal economic downturn that would be triggered by the financial crisis. But she said that by December the Fed had moved aggressively to lower interest rates to near zero and pump money into frozen credit markets.
"I was one urging more, faster, we need to get on this," Yellen said.
Early, this month Yellen succeeded Ben Bernanke as Fed chair, becoming the first woman to lead the central bank.