UPDATE 1-Fed's Yellen: Treasury yield rise disconcerting

(Adds detail, background, changes dateline, previous CHICAGO)

WASHINGTON, June 5 (Reuters) - The recent spike in U.S. Treasury yields would be "disconcerting" if it is driven by worries that the Federal Reserve will not be able to prevent a jump in inflation, San Francisco Fed President Janet Yellen said on Friday.

But Yellen, speaking on a panel on financial markets at a Federal Reserve Board/Journal of Money, Credit and Banking conference in Washington, said she was not convinced that inflation worries tied to the Fed's accommodative policies were behind the jump in rates.

"Some observers worry that the ballooning of the Fed's balance sheet may raise inflation because the Fed may face political and technical challenges when it tries to unwind these policies," Yellen said.

"While I have not found these arguments convincing so far, the recent rise in Treasury rates, if it is reflective of such concerns, is disconcerting."

Benchmark U.S. 10-year Treasury note US10YT=RR yields are currently above 3.8 percent, up from 3.16 percent a month ago.

Yellen, a voting member of the monetary policy-setting Federal Open Market Committee in 2009, warned that more volatility could lie ahead for the United States and the global economy now that a long period of relative stability, often termed the "Great Moderation," seemed to have passed.

Still, she hailed the "apparent success" of the Fed's purchases of longer-term assets and its string of programs aimed at getting money flowing into different corners of the credit market.

The extent to which those policies have helped lower borrowing costs and stimulate spending suggests "the zero-bound problem may not be as costly as previously thought," she said.

The FOMC essentially hit the "zero bound" on interest rates when it set its federal funds rate at zero to 0.25 percent in December 2008.

Some studies have suggested that the real level of the fed funds rate, consistent with current extreme weakness in the U.S. economy, should be minus 5 percent. The Fed's nontraditional policy tools have been designed to create those conditions artificially.

However, "the use of nonstandard monetary policy instruments necessarily brings with it the uncertainty and risks of unintended consequences," Yellen said.

The policy-maker said she was rethinking her support for a Personal Consumption Expenditures inflation rate of 1.5 percent, and noted that "most" FOMC members now see a rate of 2 percent "to be most consistent with the panel's dual mandate" of fostering sustainable growth and low, stable inflation.

Yellen returned to the subject of an April speech in suggesting the Fed should consider moving proactively to deflate asset bubbles, despite the pitfalls such policy can sometimes entail.

"Recent painful experiences strengthens the case for using such policies, especially when a credit boom is the driving factor," she said.

"If all asset bubbles are not created equal, policy-makers could decide to intervene in those cases that seem especially dangerous."

She did not discuss the economic outlook at the event. (Reporting by Mark Felsenthal and Alister Bull; Writing by Ros Krasny in Chicago; Editing by James Dalgleish)