BRADY: When do you expect a normalizing interest rates? When do you expect that to begin, assuming the Fed's economic projections hold?
YELLEN: So what we have said in our most recent guidance is that in determining when that time has -- is right, we will be looking at how much progress we have actually made in coming close to our mandate from Congress to attain maximum employment, and inflation of 2 percent. And we'll evaluate the pace at which we expect progress going forward. Concretely, the committee indicated that at the time the purchase program ends, it thinks that it will be a considerable time beyond that before it will be appropriate to begin that process. And the reason is, that under its baseline outlook, it would like to see, or expects it will need to see, further progress in the labor market. And it's emphasized that the level of inflation will also -- will also matter.
BRADY: If the Fed's economic projections hold, what is that range? If I were to say it will begin normalizing interest rates in 2015, would I be wrong?
YELLEN: So there is no mechanical formula or timetable for when that will occur.
BRADY: But I know in my -- I know that you work through your projections going forward. And certainly, if those were to hold, do you have some range of time that you'll begin that process? What range is that?
YELLEN: So the committee has simply set a considerable time without mechanically stating what that time interval is.
BRADY: Is considerable -- if I were to say this will begin normalizing in 2016, would I be wrong?
YELLEN: So, again, there is no specific timeline for doing that. Individual members of the Federal Open Market Committee, however, every three months provide their own forecasts for how they see the economy evolving under appropriate monetary policy. And that becomes a basis for discussion in the committee. And you can look at those projections that include individual participants' expected paths for normalization, you would see that most members believe that in 2015 or 2016, normalization would begin under their baseline outlook.
BRADY: Do you -- to put it in perspective, what year, what range of years could we expect the target rate to reach 2 percent, for example?
YELLEN: So I think the answer is that it depends on the evolution of the economy. What we're focused on is adjusting our monetary policy in light of incoming evidence about the evolution of the economy.
BRADY: But if it holds -- granted. Obviously, all this dependent, from your view, on economic performance. But given your projections, how far out are we looking at to just move about halfway back to normalization?
YELLEN: So, again, I'm afraid I can't give you a timetable. But the committee did try to, in its recent statements in March and April, provide some guidance to the public about the pace at which it expects interest rates, short-term rates, to increase once that process is started.
And what they said is that they think it will take some time, even after the economy is, in a sense, functioning normally; namely, we're operating at full employment, and inflation's around 2 percent. They think it's likely it will take some time to come back to normal, or historically average levels of interest rates -- short-term interest rates, they would see as normal levels, based on history, of something on the order of 4 percent. And they've indicated that they think it's going to take some time to reach levels like that.
I would emphasize that that's a forecast. It's not a promise. But we've had headwinds that have acted on the economy, and headwinds in the global economy, and perhaps, a slowdown in the pace of growth in the economy. And those are some of the factors that lead them to believe a gradual pace of interest-rate increases will prove appropriate.