HIGHLIGHTS - Fed chief Yellen's remarks at press conference

WASHINGTON (Reuters) - The following are highlights of Federal Reserve Chair Janet Yellen's remarks at a press conference on Wednesday following the conclusion of the U.S. central bank's two-day policy meeting.

ON INTEREST RATE PATH PROJECTIONS

"I would say there is relatively little upward movement in the (federal funds rate) path, and I would view it as broadly in line with what one would expect with a very small downward reduction in the path for unemployment and a very slight upward change in the projection for inflation.

"So most participants in deciding on the path ... look at, as our guidance says, how large is the gap between performance of the labor market and that associated with our maximum employment objective, how large is the gap between inflation and our 2 percent objective, how fast will those gaps change.

"And you see in the projections very modest reductions in the size of those gaps, and modest ... very small change of a slightly faster pace at which those gaps would change. I would describe the change in the projections both for the economy and the path of rates as quite modest."

ON 'CONSIDERABLE TIME' AND ECONOMIC DATA

"The outlook hasn't changed that much from June, and the committee felt comfortable with this characterization ...

I want to emphasize that there is no mechanical interpretation for what the term 'considerable time' means. As I've said repeatedly, the decisions that the committee makes about what is the appropriate time to begin to raise its target for the federal funds rate will be data-dependent ...

If the pace of progress in achieving our goals were to quicken, if it were to accelerate, it is likely the committee would begin raising its target for the federal funds rate sooner than is now anticipated, and might then raise the federal funds rate at a faster rate. And the opposite is also true, if the projections were to change ....

I think it would not be accurate to describe the committee's guidance about the timing of the federal funds rate and when it will move above zero as being calendar-based ... I know 'considerable time' sounds like it's a calendar-concept but it is highly conditional and it's linked to the committee's assessment of the economy."

ON REINVESTMENTS, SHRINKING FED'S BALANCE SHEET

"I think the committee would like to feel that it has successfully begun the normalization process and that we are successfully communicating with markets about how that process will be playing out over time. And I think when the committee is comfortable that that process is established, is working well and we're comfortable with the outlook, that they will begin the process of ceasing or possibly tapering but eventually ceasing reinvestments.

We've said that we will try to shrink our balance sheet to the lowest levels consistent with the efficient and effective implementation of policy. It could take to the end of the decade to achieve those levels."

ON GAP BETWEEN FED AND MARKET VIEWS FOR RATE-HIKE TIMING

"I don't frankly think it's completely clear that there is a gap. There are different views on whether such a gap exists. To the extent that there is a gap, one reason for it could be that markets and participants have different views on the evolution of economic conditions."

"It is important for market participants to understand what our likely response or reaction is to the data, and our job is to try to communicate as clearly as we can the way in which our policy stance will depend on the data, and I promise to try to do that."

ON DOT PLOT

"I think it's also notable that the further you go out in the projection period, the wider the set of dots. You see a big range out in 2017. And that reflects in part different forecasts by different members of the committee about how rapid progress will be. What you don't see in the so-called dot plot is also the uncertainty that each individual ... participant sees around their own projections. So things will depend on how the economy evolves. That will change over ... time. And there's a good deal of uncertainty associated with that."

ON FEDERAL OPEN MARKET COMMITTEE'S RATE PROJECTIONS

"Although FOMC participants provide a number of explanations for the federal funds rate running below its longer run normal level at (the end of 2016), many cite the residual effects of the financial crisis, which although slowly diminishing, are likely to continue to restrain household spending, constrain credit availability and depress expectations for future growth and output and incomes.

"As these factors dissipate further most participants expect the federal funds rate to move close to its longer run normal level by the end of 2017. Let me reiterate, however, that the committee's expectations for the path of the federal funds rate are contingent on the economic outlook."

ON EUROPEAN ECONOMY

"Certainly we have discussed the outlook for Europe: the very low level of inflation that they have seen recently and the decline that they saw in inflationary expectations, and the slow pace of growth. It is one of a number of risks to the global economy and we certainly hope that they will be successful in seeing the pace of growth and inflation pick up. And I think that will be good for the global economy and the United States."

ON FED'S INTEREST RATE FLEXIBILITY

"I've said repeatedly and I want to say again, that if events surprise us and we are moving more quickly toward our objectives and the committees sees a need to move sooner, or later depending on what the data is, that we do feel - I do feel - we have the flexibility to move. And it is important for markets to understand that there is uncertainty and the statement is not some sort of firm promise about a particular amount of time."

ON PART-TIME WORKERS

"There are still too many people who want jobs but cannot find them. Too many who are working part time but would prefer full time work. And too many who are not searching for a job but would be if the labor market was stronger. As noted in the FOMC (Federal Open Market Committee) statement, a range of labor market indicators suggests that there remains significant underutilization of labor resources. The committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market.

Indicators of spending and production for the third quarter suggest that economic activity is expanding at a moderate pace, and the committee continues to expect a moderate pace of growth going forward."

ON FED FUNDS RATE RANGE

"The FOMC now anticipates that it will continue to establish a target range, rather than a single point, for the federal funds rate when normalization begins. The dots ... now show for each participant the midpoint for this target range."

(Compiled by Lucia Mutikani, Ann Saphir, Jonathan Spicer and Anna Yukhananov)