The risks to inflation are two-sided, it will be challenging to get GDP growth to 3% in the next few years, and the Federal Reserve’s balance sheet will be reduced substantially, but won’t get back to the $1 billion level it was at before the financial crisis, Federal Reserve Board Chair Janet Yellen told Congress Thursday.

Responding to questions from the Senate Banking Committee, Yellen said 3% growth “would be wonderful if we could accomplish it” in the next two to five years, but “it will be quite challenging.”

Bloomberg News

On the balance sheet, Yellen said, “Our intention is to shrink our balance sheet in a slow, gradual, predictable way.” The reduction plan, Yellen said, should “run in the background.”

When asked if the balance sheet will return to the $1 billion level, she replied, “I have no expectation of going back to a balance sheet that small,” adding that she could not specify how small the balance sheet will be when the process ends.

On inflation, she said, “The risk with respect to inflation is two-sided,” but she added, “It probably remains prudent to remain on a gradual path of rate increases” because of the lag. She added that monetary policy is not on a pre-set course and can be altered if needed.

The lack of upward pressure on wages remains a concern.

As for the “long” expansion, Yellen said, “I don’t believe expansions die of old age. I don’t see anything inherent in the expansion to suggest it will come to an end soon.”

On inflation, Yellen said, “We’re very focused on trying to bring inflation up to our 2% target. It’s important that when we have a 2% inflation objective that we meet it.”

Yellen again would not say if she would accept renomination.

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