In a speech to the Economic Club of New York, Yellen noted that the central bankers and many economists see a return to full employment and stable prices by the end of 2016. This would be the strongest economy in a decade.
“I find this baseline outlook quite plausible,” Yellen said. She quickly added that the forecast is still two years away, showing “how far we have to go.”
U.S. stocks were near their highs of the session after the text of her comments was released, with the Dow Jones Industrial Average up by triple digits.
In her remarks, Yellen said inflation significantly persisting below 2% was more likely than inflation moving substantially above 2%. At the moment, the Fed’s favorite measure of inflation is less than 1%, well below the Fed’s annual inflation target of 2%.
Yellen said that to some extent, the low rate of inflation seems to be due to factors that are likely to be temporary, including lower consumer energy prices and a drop in import prices.Inflation is likely to gradually move back toward the central bank’s target.
The new Fed chair said the central bank’s new forward guidance can serve as an “automatic stabilizer” that helps investors from overreacting to “twists and turns” the economy may take.She said the guidance would evolve as the Fed gains more evidence about how the economy is performing