Because employment is her top priority, Yellen has a reputation for being an "inflation dove" – unconcerned with rising inflation. But the Fed has a dual mandate: not only maximum employment but also stable prices, which means low inflation. These goals are contradictory because lowering interest rates to boost jobs heightens the risk of inflation, and raising interest rates to fight inflation heightens the risk of unemployment. And Yellen's various stances on inflation reflects that inherent tension.
As a Fed governor in 1996, citing what she thought was an unnaturally low unemployment rate, she warned strongly against rising inflation during a Fed meeting: "Clearly, we have an economy operating at a level where we need to be nervous about rising inflation, even abstracting from supply side shocks," she said. "We can't dismiss the possibility that compensation growth will drift upward, raising core inflation and in turn inflationary expectations. This is a major risk. Obviously, we need to be vigilant in scrutinizing the data for signs of rising wages and salaries."
But she's also argued to allow some inflation, and has been instrumental in keeping it rising at about 2 percent annually during her time with the Fed. According to experts, she has little interest in prices rising beyond that. “The market does have it wrong if they think she is going to be soft on inflation,” Stephen Oliner, a resident scholar at the American Enterprise Institute in Washington and former senior adviser at the Federal Reserve Board, told Bloomberg. “She has very little tolerance for inflation above the 2 percent target."
