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Aggressive Fed Stimulus Still Needed: Yellen

Joshua Roberts | Bloomberg | Getty Images

Janet Yellen, the Federal Reserve's influential vice chairwoman, said Monday the central bank's aggressive monetary stimulus is warranted given how far the economy is operating below its full potential.

Downplaying the potential costs of the Fed's unconventional easing efforts, which include $85 billion in monthly asset purchases, Yellen highlighted the dangers of prolonged malaise.

"Insufficiently forceful action to achieve our dual mandate also entails costs and risks," Yellen told a conference sponsored by the National Association of Business Economists. "At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment."

(Read More: Home Buyers Are Back, but Where Are the Houses?)

Yellen, seen as a potential successor to Fed Chairman Ben Bernanke, who is expected to step down early next year, reiterated Fed officials' intention to keep their foot on the accelerator even as the economy recovers.

"The large shortfall of employment relative to its maximum level has imposed huge burdens on all too many Americans and represents a substantial social cost," she said. "Prolonged economic weakness could harm the economy's productive potential for years to come."

The economy stalled in the fourth quarter but is forecast to expand around 2 percent this year. At the same time, unemployment remains at an elevated 7.9 percent, and Yellen said Fed officials expect the rate to come down slowly, to around 7 percent at the end of next year.

In response to the financial crisis and deep recession of 2007-2009, the U.S. central bank slashed interest rates to effectively zero, and bought more than $2.5 trillion in Treasury and mortgage-backed securities in an effort to keep long-term rates low and spur spending and investment.

(Read More: For Americans, Income Falls but Spending Goes Up)

It began a third round of quantitative easing, QE3, in September, which it decided to expand in December despite divisions within the Fed's policy-setting committee over risks posed by the program.

Yellen's remarks indicated she was clearly not in the camp of those who felt the central bank might need to curtail its program before reaching its goal of a substantial improvement in the labor market outlook.

"At this stage, I do not see any (potential costs) that would cause me to advocate a curtailment of our purchase program," she said.

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