Yellen Sounds Dovish Notes

Those comments were manna to stock and bond markets, where traders have spent the last several months trying to gauge how many more rate hikes the Fed will enact to keep the economy from overheating. In recent trading, the Dow Jones Industrial Average was up 125 points to 11,198, while the 10-year Treasury yield was below 5%, at 4.98%.

Yellen further emboldened the bulls by suggesting that two villains in the inflation story -- high energy and commodity prices and a tight labor market -- might not be as tough as generally believed. While labor market tightness could produce transitory pressures, Yellen said, "I would, however, be surprised to see evidence suggesting that labor markets had tightened enough to boost inflationary pressure."

Yellen noted that inflation as measured by the core personal consumption index is up 1.8% for the 12 months through February, a benign trend that was reinforced Tuesday morning when the Labor Department said its producer price index rose just 0.1% last month, excluding food and energy.

"This rate is in my 'comfort zone' -- a range between 1% and 2%," Yellen said. "I consider core PCE inflation in this range an appropriate long-run inflation objective for the Fed."