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Wells Fargo Chief Economist: pace of economic improvement may be slower than expected in 2014

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New Federal Reserve Chair Janet Yellen is scheduled to deliver her first monetary policy testimony before Congress this week. Yellen will appear before the House Financial Services Committee Tuesday and the Senate Banking Committee Thursday. Investors will be watching Yellen’s comments closely for indications of any kind of shift in Fed policy to come over the next couple of months.

Yellen has said inflation rates will remain low at least until the unemployment rate falls below 6.5%. That rate fell to 6.6% in January, according to the Labor Department report released Friday.

Wells Fargo Chief Economist John Silvia thinks Yellen will change her guidance in the next month or two when it comes to unemployment and inflation. “I think she’s going to talk about other employment numbers, employment population ratios, perhaps long-term employment, perhaps average work week, something other than just unemployment rate because focusing on just the unemployment rate number offers a lot of sensitivities to a lot of different vagaries that happen with that number.”

One encouraging sign for the job market could be the number of people who voluntarily left their jobs in the month of November. The so-called “quits rate” hit 1.8% for the month, which was the highest rate since the recovery began. The willingness of workers to leave their job is seen as a sign of rising confidence in workers’ ability to find a new job.

“The quit rate has always been viewed as a leading economic indicator for jobs,” Silvia said. “The concept is if people are willing to leave their job, they must see their circumstances perhaps better someplace else or they feel comfortable getting another job after a short hiatus and I think the quit rate going up is a good sign for the overall labor market.”

Silvia also said he thought the January jobs report overall was a good report. He pointed to gains in construction and manufacturing as particularly encouraging signs and said the market is reevaluating its expectations on the economy. “The market had expected such strength from the economy going into this year, now they’re getting moderate growth and they’re adjusting to that.”