Federal Reserve Chair Janet Yellen on Wednesday said even as the US economy grows stronger and employment expands, she foresees only "gradual" interest rate increases in the few years ahead.
Facing sometimes tough questions in the hearing, Yellen presented the Fed's required semi-annual report to Congress -- possibly for the last time if President Donald Trump decides not to appoint her to a second term.
Yellen cautioned that possible changes in administration's economic policy and spending are a "source of uncertainty" in the economic outlook.
Another big unknown is whether stubbornly low inflation will finally move closer to the Fed's two percent target rate, from the current 1.4 percent.
Sluggish US inflation and wage increases have baffled and worried economists given the very low unemployment rate which would normally drive prices and earnings higher.
But Yellen once again expressed the view held by many US central bankers that the low pace of price increases "are partly the result of a few unusual reductions in certain categories of prices."
The Fed is watching developments carefully, she told the House Financial Services Committee in the first day of her two-part testimony. She appears before the Senate Banking Committee on Thursday.
While such low inflation normally would keep the Fed from raising interest rates, it has instead hiked rates twice this year, and expects to do so once more.
She cautioned that although the Fed's measure of inflation has been low recently, "it's premature to reach the judgment that we're not on the path to two percent inflation over the next couple of years."
"We are very committed to achieving our two percent inflation objective," she said, adding however that the Fed would reconsider its policy if inflation continues to undershoot.
Amid signs "growth rebounded in the second quarter," Yellen said, "additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion." But she said the benchmark lending rate probably will not "rise all that much further."
At the same time, she stressed that "monetary policy is not on a preset course," and that central bankers will adjust their views as more data becomes available.
"Possible changes in fiscal and other government policies here in the United States represent another source of uncertainty," she noted.
Yellen would not comment on specific policies, but economists have noted that Trump's promised burst of infrastructure spending could spur growth, while restrictive trade policies or a rising deficit could have the opposite effect.
The most contentious exchange in the three-hour hearing came when Republican Representative Bill Posey pressed Yellen on the need to audit the Fed, including real-time review of monetary policy decisions.
Yellen rejected the concept, saying it would mean political influence on the independent central bank's decisions.
"I'm strongly opposed" to the proposed legislation which removes the Fed's exemption from "real-time policy reviews ... of our monetary policy decisions," Yellen said.
"That is the essence of Federal Reserve independence and it is trying to keep politics out of decisions that should be technical, professional and nonpartisan."
Central bankers need to be able to "have honest conversations ... without having political influence brought to bear in second-guessing of decisions that we have made and opining on them, possibly with the idea of reversing them," she said.
Asked repeatedly whether she would serve a second four-year term at the helm of the Fed after her term expires February 3, 2018, Yellen declined to say.
"I'm very focused on trying to achieve our congressionally-mandated objectives and really haven't had time to give further thought at this point to this question," she said.
According to a report in Politico published Tuesday, White House economic advisor Gary Cohn -- a Goldman Sachs alumni who is not an economist -- is likely to get the Fed job if he wants it.
The story, citing four people close to the process, said Trump might reappoint Yellen, despite previous criticism of her handling of monetary policy, but Cohn is a probable choice and would sail through the congressional confirmation.
Yellen also is serving a 14-year term as a member of the board, which runs until January 31, 2024, but Fed chairs who are not renominated typically resign from the board as well.