Federal Reserve Chair Janet Yellen speaks at an economics conference, Tuesday, Sept. 26, 2017, in Cleveland.

Dake Kang | AP

Federal Reserve Chair Janet Yellen speaks at an economics conference, Tuesday, Sept. 26, 2017, in Cleveland.

In a speech delivered to the National Association for Business Economics in Cleveland, Yellen admitted that trends in employment and wage and price pressures have shifted from what central bank forecasters expected.

“More growth, more people working at better salaries and wages do not cause inflation,” Kudlow said. “What causes inflation? Excess money, which will be revealed in the foreign exchange and commodity markets and bond markets. That’s the model they should use.”

In her Tuesday speech, Yellen said a regular pace of rate hikes ahead is likely still warranted. However, she said Fed officials are looking closely at the assumptions underlying those projections.

The Federal Open Market Committee has been slowly raising rates, although it did not do so at its September meeting. It did announce it would begin to unwind its $4.5 trillion balance sheet in October. The committee also lowered expectations for inflation.

Meanwhile, Kudlow isn’t banking on Yellen staying on for another term as Fed chair, although he emphasized that was his opinion and not based on inside information. He thinks President Donald Trump wants a “reformer” heading up the central bank.

Yellen’s term as chair is up at the beginning of February.

— CNBC’s Jeff Cox contributed to this report.

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