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