The WSJ reports, "A high degree of monetary policy accommodation remains appropriate," Ms.Yellen said in testimony to the Senate Banking Committee, the first of two days of congressional hearings on the economy and monetary policy.
Stocks bounced around after her testimony began. For the Dow Jones Industrial Average, an early gain gave way to a slight loss before flitting around zero in the hour ahead of noon.
Ms. Yellen's comments come after a run of strong U.S. jobs data. U.S. payroll employment gains averaged 230,000 a month during the first six months of the year and the unemployment rate has fallen to 6.1% in June from 6.7% in March. The last major jobs report, which was released by the Labor Department after the Fed's June policy meeting, showed outsized gains in hiring last month and continued decline in the jobless rate.
"Broader measures of labor utilization have also registered notable improvements," Ms. Yellen said.
However, she responded cautiously to these encouraging developments, pointing in her prepared testimony to low levels of labor-force participation and slow wage growth as signs of continued "significant slack" in the job market.
In answers to questions later, she added that the Fed has been fooled in the past during this economic recovery by "false dawns" and that she wanted to proceed cautiously.
Some regional Fed bank presidents have argued of late that the central bank needs to start turning its eyes toward raising short-term interest rates as the job market improves.
Ms. Yellen did note that if the job market continued to improve more quickly than expected, that could lead to an earlier rate increase, but she gave no other indications that she is yet seriously considering such a move.
"Too many Americans remain unemployed," Ms. Yellen said. "Inflation remains below our longer-run objective."
She added later, in answer to one senator's question, "We need to be careful to make sure the economy is on a solid trajectory before we consider raising interest rates," she said."
She did note that most Fed officials don't expect to start raising short-term rates until next year, according to projections they made going into their June policy meeting. Those projections show officials expect the Fed's target rate to reach 1% by the end of next year. Many officials have affirmed investors' belief that the Fed won't start rate increases until about the middle of 2015.
"The [Fed] recognizes that low interest rates may provide incentives for some investors to 'reach for yield,' and those actions could increase vulnerabilities in the financial system to adverse events," she said. One worry: Issuance of junk bonds has been brisk and "valuations appear stretched." The Fed is also working to toughen supervision of leveraged-loan issuance.
