The U.S. central bank's Federal Open Market Committee must be "prepared to act in a timely manner to promote the economy's return to sustainable paths for output and employment," Yellen said in remarks to the Bay Area Council's annual outlook conference.
Her speech was similar to one delivered on April 3 at Stanford University.
Speaking aboard the aircraft carrier USS Hornet, Yellen was far from declaring "mission accomplished" in stabilizing the economy.
Still, she said the FOMC had taken "significant steps" since September in pushing the federal funds rate down to 2.25 percent from 5.25 percent.
Monetary and fiscal stimulus should give the economy a boost in the second half, Yellen said.
Yellen is not a voting member of the policy-setting FOMC in 2008.
"I consider such accommodation an appropriate response to the contractionary effects of the ongoing financial shock and the housing downturn," she said.
Even so, the housing sector "will be a major drag on the overall economy" into 2009, Yellen said.
The FOMC meets on April 29-30 to consider its next move on interest rates. Financial markets now lean toward a one-quarter basis point cut to the federal funds rate, to 2 percent.
Yellen said the weaker economy should help trim inflation going forward, but that the Fed cannot be "complacent" about price pressures.
"Consumer inflation seems likely to decline gradually to somewhat below 2 percent over the next couple of years, a level that is consistent with price stability," she said.