Speaking to reporters after an event in Honolulu, Yellen said an extended spell of slow economic growth was the most likely outcome, but that a recession -- two quarters of negative growth -- was within the range of forecasting error.
"Current indicators point to continued anemic growth for at least the first half of this year," Yellen said on a panel discussion at the Chartered Financial Analysts of Hawaii economic forecasting dinner.
The Fed's job is to mitigate the downside economic risks that are now evident, which have made a recovery from the 2007 global credit crunch harder, she said.
A rolling series of financial shocks means that even with benchmark interest rates set by the Fed now much lower, market-based credit conditions are no more accommodative than they were a year ago, she said.
The current series of rate cuts is not "spiking the punchbowl," Yellen said, in response to a comment earlier on Thursday by Dallas Fed President Richard Fisher, who is worried about igniting higher inflation.
"I don't think it's fair to say 'spiking the punchbowl' when credit conditions at this point are not obviously, across the board, looser," she said.