Feb 13 (Reuters) – An exceptionally cold winter in much of
the U.S. is slowing the economy, but may also be laying a trap
for the Federal Reserve.
Where I live in Alabama we just had our coldest January in
about 30 years. That’s good luck for my kids, who are now on
their third straight day off of school, but bad news for growth
in the large parts of the country which have suffered cold, snow
It is also raises risks for the Fed, making it more likely
that they may misread the strength of the economy and make what
could be a very expensive policy error.
There are two levels to this story. The first, more
straightforward, is the fact that people stuck shivering in
their cars, or eating day-old bread at home, are not earning,
making or buying things in their usual way. It’s hard to get a
hard number for the total costs, which is well into the
billions, but easy to see the damage in the economic data.
Cold weather got the blame for a disappointing pending home
sales figure for December which saw a bigger-than-expected drop
when announced late last month.