"This is not an economy that is in recession," said Yellen, who previously chaired the Federal Reserve. "But we’re in a period of transition in which growth is slowing and that’s necessary and appropriate."
Still, data last week suggested the labour market was softening with new claims for unemployment benefits hitting their highest point in eight months.
Yellen said that inflation "is way too high" and recent Fed rates hikes were helping to bring soaring prices back in check.
In addition, the Biden administration is selling oil from the Strategic Petroleum Reserve, which Yellen said had already helped lower gas prices.
"We've seen gas prices just in recent weeks come down by about 50 cents (a gallon) and there should be more in the pipeline," she said.
Yellen, a former Fed chief, hopes the central bank can cool the economy enough to bring down prices without triggering a broad economic downturn.
"I'm not saying that we will definitely avoid a recession," Yellen said. "But I think there is a path that keeps the labor market strong and brings inflation down."
US GDP shrank at a 1.6 per cent annual rate in the first quarter, and a report on Thursday is expected to show a gain of just 0.4 per cent in the second quarter, according to economists polled by Reuters.
Yellen said that even if second quarter figure is negative it would not signal that a recession has taken hold, given the strength in the job market and strong demand.
"Recession is broad-based weakness in the economy. We're not seeing that now," she said.
Economists have traditionally defined a recession as two consecutive quarters of economic contraction, but the private group deemed to be the official arbiter of US recessions looks at a broad range of indicators.