The economy is "on track for solid growth this quarter," Federal Reserve Chair Janet Yellen said on Wednesday, but warned that a deterioration in housing or financial markets could alter that scenario.
After recent weakness that was mostly weather-related, Yellen said many recent indicators suggest a rebound in spending and production. However, the Fed chief told a joint Congressional committee that housing remains a risk to the recovery, even as the Fed expects that sector to pick up eventually.
The newly-appointed top central banker walked a fine line between preparing markets for normalizing monetary policy from its crisis era levels, and assuring the public that the Fed would continue to safeguard a still fragile recovery. A brutally cold winter triggered a run of weak activity that caused economic growth to flatline in the first three months of the year.
"As long as we continue to see improvement in the labor market and we believe the outlook is for continued progress, and as long as we continue to believe and see evidence that inflation will move back up over time to our 2 percent longer-run objective, we anticipate continuing to reduce the pace of our asset purchases in measured steps,'' Yellen told lawmakers.
Major stock benchmarks were mixed on her testimony. In late morning trade, the Dow Jones Industrial Average rallied by about 100 points, but the tech-heavy Nasdaq slumped by more than 25 points. The S&P 500 Index clung to modest gains.
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As part of its effort to taper its bond purchases, the Fed will gradually stop reinvesting proceeds on the maturing bonds on its portfolio.