Inflation 'unacceptably high'
Yellen conceded that "clearly inflation is unacceptably high," attributing it partly to the war in Ukraine, which has pushed up energy and food prices.
But she said she did not believe "a drop-off in consumer spending is the likely cause of a recession."
The US labour market is "arguably the strongest of the post-war period," Yellen said, and she predicted a slowing of inflation in coming months.
For Fed chair Jerome Powell -- who succeeded Yellen in that position -- to control inflation without weakening the labour market will take "skill and luck," she said, before adding, "but I believe it's possible."
The US economy contracted by 1.5 per cent in the first quarter of this year, its first drop since 2020, and early indications point to a continued slowing in key sectors including manufacturing, real estate and retail sales.
A recent survey of 750 company executives by the Conference Board found 76 per cent believed a recession is looming, or has already begun.
A recent analysis from the non-profit business group predicted a period of "stagflation" -- stagnant growth coupled with inflation -- in 2023.
Economist Larry Summers, who served as Treasury secretary from 1999 to 2001, said a wide range of indicators -- market volatility, interest rates and inflation among them -- suggest a recession on the horizon.
"All of that tells me that... the dominant probability would be that by the end of next year we would be seeing a recession in the American economy," Summers told NBC's "Meet the Press."
'Pain' at the pump
For now, Americans are trying to cope with some historically sharp price increases. The cost of gas at the pump, now around $5 a gallon, has roughly doubled in only two years.
Yellen was asked about proposals for a temporary suspension in federal gas taxes, and expressed openness.
US president Joe Biden "wants to do anything he possibly can to help consumers," she said. "And that's an idea that's certainly worth considering."
The White House recently confirmed Biden will travel to major oil producer Saudi Arabia during a Mideast trip next month.
The president is "very concerned about what people are experiencing at the pump," energy secretary Jennifer Granholm told CNN Sunday.
"Saudi Arabia is head of OPEC and we need to have increased production so that everyday citizens in America will not be feeling this pain that they're feeling."