FOMC's weather woes

FOMC Report

Views at the Federal Reserve about the effect from severe winter weather on economic growth in Q1 2014 seem to change with the wind. Upon the emergence of weaker economic data following harsh weather constraints, Fed officials were quick to recognize the negative impact from weather. In the ‘Beige Book’ leading to the March FOMC meeting, reports of economic progress were upbeat; ‘Reports from most of the twelve Federal Reserve Districts indicated that economic conditions continued to expand from January to early February.’

For a very long time, the Fed has indicated that the highly accommodative policy stance should be expected to continue well beyond the time the economic recovery strengthens. This has been removed in the March Statement.  

However, where instances of slower growth were reported, weather was cited as causal; ‘New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions.’ 

By the time the Fed had met a few weeks later for the March FOMC meeting, staff economists had seemingly tired of the notion that weather was a primary contributor to weaker economic growth; ‘The information reviewed for the March 18-19 meeting indicated that economic growth slowed early this year, likely only in part because of the temporary effects of the unusually cold and snowy winter weather.’ By using the qualifier ‘only in part’ the Fed Staff indicated a growing concern that underlying conditions had deteriorated.

Finally, on April 16 Chair Yellen addressed the Economics Club of New York to discuss ‘Monetary Policy and the Economic Recovery’ noting; ‘The FOMC's current outlook for continued, moderate growth is little changed from last fall. In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.’ 

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About the Author

Martin McGuire, managing director at TJM Institutional Services

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