Janet Yellen said Thursday that the U.S. economy has regained ground lost to Great Recession but still needs the Federal Reserve's support because unemployment remains too high at 7.3 percent.
Yellen made those comments in testimony to the Senate Banking Committee, which is considering her nomination to be the next chairman of the Federal Reserve.
Her remarks suggest that she plans to stand by the Fed's extraordinary low interest rate policies begun under current Chairman Ben 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," Yellen said during a roughly two-hour hearing that was relatively free of tense moments.
Despite some tough questions from Republicans about the Fed's policies, Yellen drew praise from members of both parties. Her nomination is expected to be advanced by the committee and confirmed later by the full Senate, making her the first woman to lead the powerful central bank.
"We have the utmost respect for you," Sen. Joe Machin, a centrist Democrat from West Virginia, told Yellen.
Sen. Bob Corker, R-Tenn., told Yellen that he appreciated her "candor and transparency," and thanked her for giving him the same answers during the hearing as she had during a meeting with him in his office.
The Fed's policies, which include three rounds of bond purchases, are credited with helping boost economic growth and lower unemployment. But they have also driven up stock prices and stoked worries about a greater risk of inflation and asset bubbles.
During the hearing, Yellen was pressed by Republicans to specify when the central bank might begin scaling back its $85 billion-per-month in bond purchases.
Yellen didn't bite. She said Fed policymakers assess the risks and benefits of the bond purchase program each time they meet.
"The committee is looking for ... signs of growth that are strong enough to promote continued progress" in the labor market. She said "there is no set time that we will decide to reduce the pace of our purchases."
Various Republicans expressed their concerns that the Fed's massive bond purchases, which have pushed the central bank's balance sheet to a record level of $3.8 trillion, have inflated stock prices and real estate.
"I think the economy has gotten used to the sugar you have put out there and I just worry that we are on a sugar high. That is a very dangerous thing," said Sen. Mike Johanns, R-Neb.
Yellen sought to assure the committee that the Fed is aware of those potential threats. But she said the benefits of the program currently outweigh the risks.
She also noted that the economy is still performing far below its potential and inflation is running below the Fed's 2 percent target.
"If we want to get back to business as usual and a normal monetary policy, we need to do that by getting the economy back to normal and that is what I hope (the Fed's) policy will accomplish," Yellen said.
Many economists believe the Fed will keep the purchase level unchanged at its upcoming meeting in December. Many say the Fed may not begin to scale back the program until its March meeting. That would allow the Fed more time to see if the solid job gains reported in the past three months continue.
Yellen's remarks seemed to confirm those forecasts.
"This is a strong signal that the Fed is not going to reduce its support for the economy any time soon," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.