"Holding the stance of policy steady for a time makes sense to me," said San Francisco Fed President Janet Yellen in prepared remarks to an independent bankers' group in California.

She characterized current interest-rate policy as "moderately restrictive," saying it is appropriate as officials try to temper inflation pressures and scrutinize incoming economic numbers.

Analysts have expected the Fed to keep its finger on the pause button, and Yellen's speech appeared to keep up support for a pause.

But she cautioned that the full effects of the central bank's 17 rate increases haven't yet been felt, and that those lags can take from several months to a couple of years. Read Yellen's remarks.

The effects of those rate increases, she said, "are probably still in the pipeline."

The Fed stopped hiking interest rates in August after 17 consecutive rate hikes raised its key target Fed funds rate from 1% to 5.25%.

Inflation was a central topic of Yellen's speech Monday, with the bank president warning that "more progress is needed" to bring down core inflation. Core inflation excludes volatile food and energy prices.

Inflation is, however, edging down by itself, she noted. Below-trend growth in the economy and stabilizing oil prices are contributing to the recent easing in inflationary pressures, she said.

The decision to pause rate increases in August gives the Fed time to see if its moves have been adequate to contain inflation, she said.

"With the passage of time, we will gain more information on whether we have done enough to assure that inflation moves gradually lower," Yellen said.

Federal Reserve policymakers meet next on Oct. 24 and 25.

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An update of Fed .......

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At an economic forum sponsored by the Tenth Federal Reserve District, Hoenig described an outlook of growth into next year below the economy's potential. That could be interpreted as setting the stage for reduced interest rates sometime in 2007.

A nonvoting member of the Federal Open Market Committee, Hoenig made it clear that he Fed's two-year campaign of raising the Fed funds rate, which it stopped in August, is continuing to do its work on the inflation rate.

"I feel it will come down," he said. He also predicted core inflation, excluding food and energy, will fall.