Federal Reserve Board Chair Janet Yellen said the U.S. economy should continue to expand over the next few years, allowing the central bank to keep raising interest rates, while also stressing the Fed is monitoring too-low inflation.
"Considerable uncertainty always attends the economic outlook," Yellen said Wednesday in remarks prepared for delivery to the U.S House Financial Services Committee. "There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization."
U.S. stocks opened higher while Treasury yields fell with the dollar after her testimony was released.
In a question-and-answer session with lawmakers, Yellen said the Fed is considering risks around the inflation outlook, while she also cited "temporary" influences, such as quality-adjusted costs of mobile-phone plans and prescription drugs, that are holding down price measures.
"To my mind, a prudent course is to make some adjustments as long as our forecast is that we're heading back to 2%" inflation, Yellen said. "It is premature to reach the judgment that we are not on the path to 2% inflation over the next couple of years."
She repeats the performance Thursday before the Senate Banking Committee, wrapping up her final testimony to Congress as Fed chair, unless she is re-nominated by President Donald Trump. Yellen's current term expires on Feb. 3.
"We thought that it was pretty balanced and a pretty steady continuation of the themes" that Yellen had laid out after the Fed's meeting last month, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. "It was pretty straight down the middle."
Yellen emphasized in her remarks that the central bank is on alert about prices remaining below the central bank's 2% target. Other members of the Federal Open Market Committee have mentioned similar concerns in recent days.
"The committee will be monitoring inflation developments closely in the months ahead," she said.
Nevertheless, the Fed chair said, the baseline outlook is for levels of interest rates to continue to support job gains and income growth and therefore consumer spending.
