"We saw trees, and the house-price bubble was a tree," Fed Chair Janet Yellen said Friday at Harvard University, where she was awarded the Radcliffe Medal.

"We really didn't see that coming."

She said the explosion in borrowing was a sign, but the Fed did not see the risks evolving into a full-blown crisis. 

Yellen said former Fed Chairman Ben Bernanke did a "magnificent" job in steering policy to heal the economy after the Great Recession. 

He was the "right person with the right intellectual background and courage to think outside the box," Yellen said. 

On future monetary policy — what most people really wanted to hear about — Yellen said a rate hike in the coming months may be appropriate. 

This isn't new from her. Minutes from the FOMC's April meeting made specific reference to their June meeting as a possible time for a rate-hike vote.