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YELLEN: We didn't see the financial crisis coming

May 27, 2016, 23:05 IST

Federal Reserve Board Chair Janet Yellen testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on the &quotSemiannual Monetary Policy Report to Congress" in Capitol Hill, WashingtonThomson Reuters

Federal Reserve chair Janet Yellen says the Fed did not see the financial crisis coming.

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"We saw trees, and the house price bubble was a tree," Yellen said Friday at Harvard University, where she was awarded the Radcliffe Medal.

"We really didn't see that coming," she said.

She said the explosion in leverage was a clue, but the Fed did not see it evolving into a full-blown crisis.

Yellen said former Fed chairman Ben Bernanke did a "magnificent" job in steering policy to heal the economy after the Great Recession.

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He was the "right person with the right intellectual background and courage to think outside the box," Yellen said.

On future monetary policy - what most people were really listening in to hear about - Yellen said a rate hike in the coming months may be appropriate.

This isn't new, of course. Minutes from the Fed's April meeting made specific reference to June as a possible time for a rate hike.

Yellen repeated that if rates rise too quickly and there's a severe market or economic downturn, there are limited policy tools the Fed would have to respond.

We'll hear from Yellen again on June 6, when she speaks at a World Affairs Council event in Philadelphia.

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