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Updated from 12:58 p.m. EDT

The economy is likely to moderate after a big first quarter, with a cooling real estate market and less-frenetic consumer spending holding growth to a "more sustainable and trendlike pace," San Francisco

Federal Reserve

president Janet Yellen said in a speech Tuesday.

While inflation risks "are tilted slightly to the upside," Yellen argued, there is also reason to believe the Fed's campaign of 15 straight interest-rate hikes is having its desired effects. Among them are the refusal of higher energy prices to pass through to consumer products and the overall stability in core inflation.

"What I see is essentially pretty positive. The economy appears to be approaching a highly desirable trajectory," Yellen said. "Real GDP growth currently appears to be quite strong, but there is good reason to expect it to slow to around its potential rate as the year progresses. If it does, the degree of slack should remain within range of full employment and have little effect on inflation going forward.

"Although inflation is in the upper portion of my comfort zone, it appears to be well contained at present, and my best guess for the future is that it will remain well contained," she said.

Yellen's speech came a few hours before the

release of minutes from the March 27 and 28 meeting of the Federal Open Market Committee. The notes suggest she is among an increasingly vocal group of Fed members who are concerned the Fed might go too far in tightening.

On March 28, the Federal Open Market Committee raised its official fed funds target by a quarter-point to 4.75%, the highest level since April 2001. In an accompanying policy statement, the committee retained language stating that further tightening might be necessary, depending on the character of incoming economic data.

Yellen expanded on that view Tuesday, noting that if commodity prices showed signs of seeping into the economy, it would be a red flag.

"But by the same token, I am increasingly concerned about the well-known long and variable lags in monetary policy -- specifically, that the delayed effects of our past policy actions might impact spending with greater force than expected," Yellen said. "This could show up especially in the housing market and via housing prices and balance sheet effects on consumer spending. While I expect the housing sector to slow somewhat, I will be highly alert to the possibility of the policy tightening going too far."

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."