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Fed's Yellen: US economy close to full employment

Fed Chair Janet Yellen said Thursday that economic data since October is consistent with the central bank's expectations of an improved job market.

In remarks prepared for delivery to Congress, Yellen also said the market is close to the central bank's goal of full employment, and that drags on inflation will diminish next year.

"I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market," she said. "Ongoing gains in the labor market, coupled with my judgement that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent."

Federal Reserve Board Chairwoman Janet Yellen delivers remarks December 2, 2015 in Washington, DC.
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Federal Reserve Board Chairwoman Janet Yellen delivers remarks December 2, 2015 in Washington, DC.

Her comments came less than two weeks before the Federal Open Market Committee meets to decide on whether to raise interest rates for the first time in more than nine years.

Regarding a rate hike, Yellen said the central bank had to be cautious about raising rates from near zero, but added that — even after an initial increase — Fed funds rates would remain accomodative.

"That initial rate increase would reflect the Committee's judgment, based on a range of indicators, that the economy would continue to grow at a pace sufficient to generate further labor market improvement and a return of inflation to 2 percent, even following the reduction in policy accommodation," she said.

Yellen made similar comments on Wednesday, when she said she is "looking forward" to the day when the central bank raises rates. Nonetheless, she maintained in her speech Wednesday that upcoming data could still sway the Fed's decision on interest rates.

She spoke a day before the Labor Department releases its monthly employment report, which is expected to show a gain of 195,000 jobs during November.

Economic impact of mass shootings

Yellen said she does not see any economic impact from recent mass shootings or attacks around the world on the U.S. economy, but added they could have a knock-on effect in the future.

"It does have the potential to have a significant economic effect," she said.

Yellen also discussed her global economic outlook, saying there has been "relatively weak growth" overseas. "That weak growth shows through the demand for U.S. exports, and is one factor that has been depressing U.S. net exports."

— Reuters contributed to this report.