The Wall Street Journal reports, "Ms. Yellen studiously sought to keep the central bank's interest-rate options open in the speech before the Economic Club of New York. "Because the course of the economy is uncertain, monetary policymakers need to carefully watch for signs that it is diverging from the baseline outlook and then respond in a systematic way," she said.
But in a recitation of developments she is monitoring, she highlighted her focus on factors weighing on inflation and the economy that she expected would keep interest rates low for longer".
In particular, Ms. Yellen said she was more worried about inflation getting too low than too high. The Fed is "well aware" that inflation could shoot above its 2% goal, she said. "At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2%." In answer to a question posed after her speech, she added the Fed's focus should be on lifting inflation to the 2% goal, not holding it down.
The setting provided the Fed chief's first opportunity in her new role to field questions in public from economists, instead of reporters or lawmakers as she had done in prior months.
She emphasized that slack in labor markets is holding down wages. "Wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration," she said.
The Fed's preferred inflation gauge, the Commerce Department's personal consumption expenditures price index, was up 0.9% in February from a year earlier. That includes movements of volatile food and energy prices. This price index has runbelow the Fed's 2% goal for 22 straight months.The Labor Department's closely watched consumer-price index was up 1.5% in March from a year earlier.
"We have indeed had a disappointingly slow recovery and our consistent expectations for a pickup in growth have been dashed over a number of years," Ms. Yellen said in response to questions.
The Fed last month released interest-rate forecasts that some investors and analysts took as a sign that rate increases might come a little sooner and be a little more aggressive than previously expected. Many officials have pushed back on that view since the March meeting. Investors now widely see the Fed's first rate increases around the middle of 2015.
Ms. Yellen tried to emphasize that she doesn't plan to be locked into that position, and a shift in the economic outlook could alter the Fed's plans. "Overshooting that [2% inflation] goal, we have learned in past episodes, in past recoveries, can be very costly to reverse," she said. "We will remain very focused on removing accommodation when the right time has come."
