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Federal Reserve Chair Janet Yellen discussed the current economic outlook and reiterated her expectations for the Fed to start tapering its balance sheet "this year" as she delivered the Fed's semiannual monetary policy report to the House Financial Services Committee Wednesday.

"The Fed has mapped out a course for monetary policy in the second half of the year, which likely involves beginning to wind down asset holdings in September and another rate hike in December," said NAFCU Chief Economist and Director of Research Curt Long. "Of the two, the latter is less certain.

"Weakening inflation is a concern for many of the [Federal Open Market Committee] members, and although Chair Yellen has stated on more than one occasion that she sees this as owing to temporary factors, a continued slide in price growth would likely result in a delay until 2018 for any rate moves."

The Q&A portion of Wednesday's hearing was heavily focused on regulation. On more than one occasion, Yellen said community banks and credit unions should be provided regulatory relief, and she said she agreed with many aspects of the Treasury report addressing opportunities for credit unions and banks.

In response to a question from Rep. Claudia Tenney, R-N.Y., about her support for some of the measures included in the Treasury report, Yellen said there is much that banking regulators can do on their own to ease the regulatory burden for community financial institutions, such as simplifying capital requirements. She also said the Fed has reduced reporting requirements and is working to extend exam cycles and better tailor rules to lower burdens.

Yellen will deliver similar testimony today before the Senate Banking Committee.

Also on Wednesday, the Fed released its Beige Book, which showed that economic activity expanded across all 12 Federal Reserve districts in June. However, consumer spending – while rising across many of the districts – also softened in some, particularly for auto purchases.

The report also found that residential and nonresidential construction activity "was flat to expanding in most Districts." Tightening in the labor market was also noted for both low- and high-skilled positions.

The Fed report also found that prices rose modestly in the majority of the districts, with a few noting that "price pressures had eased slightly."