HIGHLIGHTS-Fed chief Yellen's news conference after FOMC meeting

WASHINGTON, Sept 17 (Reuters) - The following are highlights from Federal Reserve Chair Janet Yellen's press conference on Thursday following the end of a two-day meeting of the U.S (Other OTC: UBGXF - news) . central bank's policy-setting committee.

YELLEN ON POSSIBLE RATE HIKE IN OCTOBER:

"So as I've said before, every meeting is a live meeting where the committee can make a decision to move to change our target for the federal funds rate. That certainly includes October. As you know and I've stressed previously, were we to decide to do that, we would call a press briefing, and you've participated in an exercise to make sure that you would know how to participate in that press briefing, should it happen.

"So yes, October remains a possibility."

YELLEN ON LABOR MARKET SLACK:

"As I said, although we're close to many participants and the median estimate of the longer-run normal rate of unemployment, at least my own judgment - and this has been true for a long time - is that there are additional margins of slack, particularly relating to very high levels of part-time involuntary employment, and labor force participation that suggests that at least to some extent the standard unemployment rate understates the degree of slack in the labor market.

"But we are getting closer. The labor market has improved. And as I've said in the past we don't want to wait until we've fully met both of our objectives to begin the process of tightening policy given the lags in the operation of monetary policy."

YELLEN ON TIMING OF RATE HIKE:

"Let me again emphasize that the specific timing of the initial increase in the target range for the federal funds rate is far less important for the economy than the entire expected path of interest rates. And once we begin to remove policy accommodation, we continue to expect that economic conditions will evolve in a manner that will warrant only gradual increases in the target federal funds rate."

YELLEN ON DOMESTIC ECONOMY:

"You know, I want to emphasize, domestic developments have been strong. We see domestic demand growing at a solid pace, the labor market continuing to improve. Of course, we will watch incoming data to confirm our expectation that that will continue. And we of course will watch global financial and economic developments."

YELLEN ON INTERNATIONAL, MARKET DEVELOPMENTS:

"The outlook abroad appears to have become more uncertain of late and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets. Developments since our July meeting -- including the drop in equity prices, the further appreciation of the dollar, and a widening in risk spreads -- have tightened overall financial conditions to some extent."

"Given the significant economic and financial inter-connections between the United States and the rest of the world, the situation abroad bears close watching."

YELLEN ON INFLATION:

"Inflation has continued to run below our 2 percent objective, partly reflecting declines in energy and import prices.

"My colleagues and I continue to expect that the effects of these factors on inflation will be transitory.

"However, the recent additional decline in oil prices and further appreciation of the dollar mean that it will take a bit more time for these effects to fully dissipate."

YELLEN ON GROWTH AND LABOR MARKET:

"Net exports were a substantial drag on net GDP growth during the first half of the year reflecting the earlier appreciation of the dollar and weaker foreign demand. The committee continues to expect the moderate pace of overall GDP growth even though restraint from net exports is likely to persist for a time.

"The labor market has shown further progress so far this year toward our objective of maximum employment. Over the past three months, job gains average 220,000 per month. The unemployment rate at 5.1 percent in August was down four-tenths of a percent from the latest reading available at the time of our June meeting, although that decline was accompanied by some reduction in the labor force participation rate over the same period."

YELLEN ON GLOBAL DEVELOPMENTS' EFFECT ON U.S. INFLATION

"Inflation however has continued to run below our longer-run objective, partly reflecting declines in energy and import prices. While we still expect the downward pressure on inflation from these factors will fade over time, recent global economic and financial developments are likely to put further downward pressure on inflation in the near term. These developments may also restrain U.S. activity somewhat, but have not led at this point to a significant change in the committee's outlook for the U.S. economy."

YELLEN ON ECONOMIC OUTLOOK:

"The unemployment rate has declined and overall labor market conditions have continued to improve. Inflation, however, has continued to run below our longer-run objective, partly reflecting declines in energy and import prices.

While we still expect that the downward pressure on inflation from these factors will fade over time, recent global economic and financial developments are likely to put further downward pressure on inflation in the near term. These developments may also restrain U.S. activities somewhat, but have not led at this point to a significant change in the committee's outlook for the U.S. economy."

(Reporting by Washington economics team)