updated 1/22/2007 6:00:16 PM ET 2007-01-22T23:00:16

San Francisco Federal Reserve Bank President Janet Yellen said Monday that current interest rates are high enough to tamp down inflation over time, even in the face of possible wage price pressures.

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“Let me be clear that I do want inflation to move down, but I believe policy may now be well-positioned to foster exactly such an outcome while also giving due consideration to the risks to economic activity,” Yellen said in a speech to the Joint Rotary Clubs of Reno and the East Bay in one of Reno’s large casinos.

“There are indeed large uncertainties — and in particular, upside risks — to the outlook for inflation,” she said, focusing on the current strong labor market.

Yellen told reporters that she had no fixed timetable for inflation to ease, given the long and variable lags between policy implementation and the way those policies are reflected in the economy.

The San Francisco Fed has forecast that the core personal consumption expenditures price index will probably not fall back to an annualized 2 percent, the top of the Fed’s presumed comfort zone, until the end of 2008.

The index posted a 12-month change of 2.2 percent in November, down from 2.4 percent in October.

“Lags are very long in the inflation process, and our forecast reflects that,” Yellen said. “I want inflation to move down over time. ... Does the timeframe have to be fixed and short? No, not in my view.”

Yellen said that at 5.25 percent, the federal funds rate is moderately restrictive and appropriate, given “middling” economic growth and the still-uncertain inflation outlook.

Recent lower readings on inflation have been encouraging, but are yet to show up in the data on a sustained basis, she said.

Financial markets assess that the policy-setting Federal Open Market Committee will hold rates steady for several months starting with its Jan. 30-31 meeting.

Yellen is not a voting member of the FOMC this year.

She spoke at length about the puzzle of the labor market ”going gangbusters” while the economy is growing a bit below its long-term trend.

There is a possibility that the economy’s long-run growth rate could be lower than many estimates, she said.

Still, even with the U.S. jobless rate holding at 4.5 percent, below common estimates of full employment, Yellen said there were no straightforward conclusions to be drawn between unemployment and inflation.

On balance, Yellen said the U.S. economy seems to be “on a glide path for the proverbial ’soft landing.”’

In particular, worries about the weak housing market pulling the country into recession have been largely allayed, she said, adding that fears about plummeting housing prices have not played out on a national level.

Consumer spending remains solid, and most sectors of the economy apart from housing are “pretty robust.”

Asked about how the trend among foreign central banks, particularly China’s, to diversify reserves away from the U.S. dollar might be influencing the currency, Yellen said only that ”no straightforward conclusions” could be drawn.

“Central banks are significant participants in exchange markets but they’re not the only participants by a long shot,” she said. “There are a lot of influences on exchange rates.”

Yellen said it was hard to guess how turnover among regional Fed presidents and on the Federal Reserve Board might shift the dynamics of the central bank.

Chicago Fed President Michael Moskow, seen as a policy hawk, will retire at the end of August, the bank announced Monday. And Boston Fed President, Cathy Minehan, a centrist, last week said she plans to retire this year when a replacement is found. Both are voting members of the FOMC in 2007.

“Cathy and Mike were great presidents; I loved working with them,” said Yellen.

Copyright 2012 Thomson Reuters. Click for restrictions.

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