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Yellen sees economy nearing full employment

Federal Reserve Chair Janet Yellen said she believes the U.S. central bank is close to achieving both full employment and stable prices in line with its long-term targets.

Yellen said during a Jan. 18 speech that unemployment had returned to pre-recession levels, and argued that inflation is "inching back toward 2 percent ... as the job market continued to improve," and declines in energy prices fade. She added that as the economy continues to improve the bank would still look to gradually normalize interest rates. Policymakers and the economy could face a "nasty surprise" if the Fed waits too long to adjust rates and is forced to scramble to catch up to rising inflation, Yellen said.

The Federal Open Market Committee voted in December 2016 to lift the Fed's key interest rate to between 50 basis points and 75 basis points.

Although Yellen said the economy was "close" to both of the Fed's mandates, she cautioned that the central bank's policy will ultimately "depend on how the economy actually evolves over coming months."