The comments, made available in advance, were broadly similar to those she made in La Jolla, California, on Monday.
The Fed's string of interest rate cuts between September and April helped blunt the worst-case scenarios for growth, said Yellen, adding her outlook was clouded in uncertainty.
"I am somewhat reassured by the recent data, which suggest that my biggest fears on the downside have, so far, been avoided. However, a few months of data don't make a trend." The risks to inflation, meanwhile, "have definitely increased" recently, Yellen added.
Although there is no sign so far of generalized wage pressure flowing from higher energy and food prices, "we cannot and will not allow a wage-price spiral to develop," she said.
Yellen said headline inflation is likely to run "much higher than desired" for the next few quarters. Core prices, which exclude food and energy costs, are also set to rise as businesses pass on their higher costs, she said.
Both measures should start to subside in 2009 as a result of more slack in the labor market, she added.
Market-based inflation expectations, monitored by the Fed as a sign of how its policies are being perceived, have risen but are still "reasonably well anchored."
Yellen is not a voting member of the central bank's monetary policy-setting Federal Open Market Committee in 2008, but will vote in 2009.
Problems in the housing market, financial markets and soaring commodity prices have equated for the U.S. economy to the three witches of Shakespeare's Macbeth, "brewing up trouble amid thunder and lightning," Yellen said. "Home prices and construction spending seem likely to continue to fall well into 2009," she said, while financial market dislocations "are likely to be with us for some time."
"My expectation is that market functioning will improve markedly by 2009. But things could get worse before they get better," Yellen said.
Even now, an "adverse feedback loop" between impaired financial markets and the broader economy could develop, she said.
The FOMC has lowered its benchmark federal funds lending rate to the current 2 percent from 5.25 percent since September.
Financial markets are pricing an FOMC rate increase to 2.25 percent by October as policy-makers act to tamp down inflation once the economy stabilizes.