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Yellen Speech, Fed Data Send Mixed Messages; What's an Investor to Do?

NEW YORK (TheStreet) -- The economy is booming. The economy is weak. The economy is getting a bit better after a nasty winter, but it's hard to say how fast.

The market heard all three messages yesterday -- all courtesy of the Federal Reserve. So which is it -- and what should investors do about it?

The boom message came from boffo numbers on industrial production, a 0.7% gain in March that handily beat estimates and suggested that manufacturing is surging.

"It ... points to accelerating activity and if that momentum is sustained, we could have a very big second quarter growth rate,'' economist Joel Naroff said.

The "weak" message came from Yellen's speech to the Economic Club of New York, where she repreated her now-familiar refrain that interest rates will stay at near-zero levels until either inflation begins to rise or the last remnants of weakness are out of the labor market.

"A return to full employment is, for the first time since the crisis, in the medium-term outlooks of many forecasters," Yellen said. "It is a reminder of how far we have to go, however, that this long-awaited outcome is projected to be more than two years away."

And the in-between came from the Beige Book, which most pundits depicted as a relatively upbeat look at the economy, courtesy of the central bank's rotating cast of anonymous business contacts scattered across the country.

In fact, it was more mixed than that. About the best the Beige Book said about conditions in any of the 12 central bank districts was that growth was "modest or moderate." In Fed-speak, "modest to moderate" is a step down from "moderate" growth -- which is what nine districts reported as recently as January.

So what does this mean the Fed is going to do?

For now, there was nothing to move the Fed off its current course -- keep reducing its monthly bond purchases that drive down market interest rates, especially on mortgages but keep the Fed funds rate at nearly zero until at least well into next year. The industrial production report tells you that there's no real need for more stimulus, while Yellen's speech makes about as clear as can be that interest rate hikes aren't yet on the horizon.

The question is how long the Fed can keep responding to new, more-positive news like the industrial production report by pointing to real but long-standing problems such as the persistently high rate of long-term unemployment.

For example, Yellen has made a point of arguing that there is little to no pressure on wage growth -- a point she repeated yesterday, and which the Beige Book emphasized, even though the March Beige Book cited a number of cases where wages are beginning to move as unemployment in different regions and different occupations drops.

The New York Times, USA Today and Bloomberg News have all reported that low regional unemployment is beginning to produce higher-than-average wage growth in cities and industries where markets are tighter than the national average.

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