The U.S. economy has regained ground lost to the Great Recession but still needs the Federal Reserve's support because unemployment remains too high, Federal Reserve Vice Chairman Janet Yellen said Thursday.
Yellen made those comments in testimony to the Senate Banking Committee, which is considering her nomination to be the next head of the Federal Reserve when current Chairman Ben Bernanke steps down in January.
She told lawmakers that the Fed's objective is to get back to full employment while keeping inflation under control.
Her remarks suggest she plans to stand by the Fed's extraordinary low interest rate policies begun under Bernanke until the economy shows further improvement.
The Fed's support of the recovery is the "surest path to returning to a more normal approach to monetary policy," said Yellen.
Yellen released a statement Wednesday that said unemployment at 7.3 percent was too high and inflation is below the Fed's 2 percent target.
"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she said. "Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential."
Yellen is expected to win confirmation but she could face some tough questioning from critics who say the Fed has kept its easy policies in place too long, overbloating its balance sheet and threatening to create bubbles.
"I don't think she's going to volunteer the information that the market wants to get some clarity on , meaning when is the Fed going to taper, when is QE going to end and when are rates going to go up. The timing of the taper and the path of the taper is what's most important to people right now," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
LaVorgna said if Yellen sounds more middle of the road in the question-and-answer session, the market might take that as a signal she is less dovish and could be supportive of the Fed moving towards tapering back its bond buying program sooner rather than later. Fed watchers have been debating whether the Fed could move to cut back its $85 billion a month quantitative easing program sooner than expected, after Friday's surprisingly strong October jobs report.
Speculation that Yellen would lean dovish in the statement — favoring an easy policy stance — helped send stocks higher Wednesday even before the statement was released at 4:30 p.m. ET. The speculation coincided with reports midday that Yellen's opening statement would be released after the market close.
"It's nothing off message from what we've heard from the committee in the last few months. It echoes the voice of the FOMC's voting body," said Ian Lyngen, senior Treasury strategist at CRT Capital. "I think the market was generally expecting it to be more balanced and, or hawkish and it just came out as more of the same of what we've been hearing form the Fed."
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.