Fed's No. 2: Don't blame us for oil spike

NEW YORK (CNNMoney) -- The Federal Reserve's efforts to pump money into the U.S. economy are not to blame for the rise in oil and other commodity prices, according to the No. 2 official at the central bank.

Fed Vice Chairman Janet Yellen, in a speech to the Economic Club of New York Monday, said that rapid growth in demand by emerging economies such as China are driving up prices. And she argued that the Fed should not need to pull back on its stimulus efforts in order to rein in prices.

Yellen said the Fed's current program of buying up to $600 billion in additional long-term Treasuries and keeping its key interest rate near 0% "continues to be appropriate because unemployment remains elevated."

She added that measures of inflation are still lower than what the Fed usually considers to be stable for the long-term.

Yellen said it is not reasonable to attribute the rise in commodity prices with the 10% decline in the value of the dollar against other major currencies since last summer.

She said she doesn't think this current spike in prices will derail the U.S. economic recovery. While high prices for oil, food and other commodities will feed overall inflation over the next few months, she expects consumer inflation will then retreat and remain subdued.

Yellen repeated recent statements by Fed chairman Ben Bernanke, who has maintained that the impact of higher commodity prices on overall inflation to be "modest" and "transitory."

Since businesses are seeing little increases in labor costs due to high unemployment and productivity gains, there are only limited inflationary pressures caused by rising commodity prices, she said.

Yellen acknowledged that some inflation expectations are rising in the short-term, which she said is reasonable in light of commodity prices, but she sees prices remaining stable in the long run.

"Longer-term inflation expectations seem to me to have been roughly constant," she said in response to a question.

Even if inflation continues to rise under pressure from higher gas prices, it wouldn't necessarily mean that the Fed should change monetary policy, Yellen said.

"Such shocks push up unemployment and raise inflation," she said. Tightening by the Fed in response to a price spike, "might mitigate the rise in inflation, but would contribute to an even weaker economic recovery."