

Is Janet Yellen worried enough about inflation? (Jacquelyn Martin/ Associated Press)

In her testimony before the congressional Joint Economic Committee on Wednesday, Federal Reserve Chair Janet Yellen reiterated that the recovery is on track but that it will still require substantial support from the Fed for some time. (Read the full text of her prepared remarks here.)

Here are the four big takeaways from the Fed chair's remarks:

1. Yellen is not worried about weak first-quarter GDP growth (but she is keeping an eye on housing).

Growth stalled out at the start of the year, but Yellen thinks that's just a "pause." The unusually harsh winter kept shoppers at home and homebuilders from working, and Yellen predicted that growth will rise as temperatures do now.

Still, Yellen said she is concerned about what she called the "flattening" in the housing market, which could prove more "protracted than currently expected." Part of that reflects weaker demand from higher, though still historically-low, mortgage rates. And part of it reflects weaker demand from low household growth — from young people living at home instead of on their own.

2. Yellen is still focusing on alternative measures of labor force slack.

The unemployment rate continues to come down sharply, but, as she has said before, Yellen doesn't think that figure gives us a full picture of the labor market's weakness. Long-term unemployment, part-time workers who want a full-time job but can't find one, and low wage growth all point to an economy still operating well below full capacity. These figures give the Fed more scope for stimulus.

3. Interest rates could stay low even after inflation and unemployment get back to normal.

In her prepared remarks, Yellen didn't give a timeline for when she expects interest rates to get closer to their long-run average of 4 percent, but she did say that it could take longer than the economic fundamentals would suggest. In other words, the Fed wouldn't start raising rates quite as quickly as low unemployment and moderate inflation would suggest they would, in large part because of the slack that these numbers aren't picking up.

4. There's some evidence of risky financial behavior ... but not on a large scale

Yellen said that the Fed was watching the frothy markets in lower-rated corporate debt but that, in general, the big banks and life insurance companies didn't seem to be going back to the bad old days of taking on too much risk. Overall leverage is down, and so is reliance on short-term funding that, as Bear Stearns learned, can disappear overnight.