Federal Reserve Bank President Janet Yellen said U.S. interest rates "are within range of the desired setting" but that inflation from a "gangbusters" labor market remains a risk.
"Let me be clear that I do want inflation to move down, but I believe policy may now be well-positioned to foster exactly such an outcome," Yellen said in a speech to the Arizona Council on Economic Education.
A copy of her remarks was made available in advance.
The fed funds rate at 5.25 percent "is currently within the moderately restrictive range that appears appropriate" given "middling" economic growth and the still-uncertain inflation
outlook, Yellen said.
Recent lower readings on inflation have been "encouraging," but are yet to show up in the data on a sustained basis, she said.
Financial markets assess that the policy-setting Federal Open Market Committee will hold rates steady for several months. Yellen is not a voting member of the FOMC this year.
"While I am inclined to see labor market tightness as transitory, I do see it as a serious risk," she said.
On balance, Yellen said the U.S. economy seems "on a glide path for the proverbial 'soft landing.'"
Worries about the weak housing market pulling the country into recession "have been largely allayed," she said.
Consumer spending remains solid, and most sectors of the economy apart from housing are "pretty robust."