By Harriet Torry 

The Federal Reserve is monitoring inflation closely given officials' uncertainty over whether the factors keeping it below their 2% target will prove endemic, Chairwoman Janet Yellen said Tuesday.

"We expect [inflation] to move back up over the next year or two, but I will say I'm very uncertain about this," Ms. Yellen said.

For much of this year, Ms. Yellen and other Fed officials said the shortfall in inflation could be caused by transitory factors, like a drop in pricing for wireless phone plans and subdued growth in health-care prices. But more recently, they have questioned how transitory the price weakness may be.

"My colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely," Ms. Yellen said at New York University's Stern School of Business.

While slack in the labor market, a bout of low oil prices and appreciation of the dollar held down inflation over the past few years, "this year low inflation is surprising because we're at essentially full employment," Ms. Yellen said. The jobless rate hit 4.1% in October, the lowest reading since December 2000.

As a result, Ms. Yellen, who plans to leave the central bank in early February when her term as chairwoman ends, is "keeping an open mind" about inflation.

"It may be that there is something more endemic or long-lasting here that we need to pay attention to," she said in a discussion with Mervyn King, the former governor of the Bank of England.

Ms. Yellen and her colleagues have been grappling with subdued inflation for much of the year despite a growing economy and vigorous labor market. The Fed's preferred measure of inflation rose 1.6% in September from a year earlier. While that was the strongest headline reading since April, core inflation, which strips out volatile food and energy prices, was at a 1.3% annual rate for the second straight month.

Ms. Yellen didn't comment on the immediate path of monetary policy, although she said the economy is "reasonably close" to the central bank's dual mandate of maximum employment and price stability.

The Fed last raised rates in June to a range of between 1% and 1.25%. At their Sept. 19-20 policy meeting, they penciled in one more quarter-percentage-point rate rise this year.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

November 21, 2017 20:19 ET (01:19 GMT)

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