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Yellen: Fed on track for rate hike later this year, but cites labor weakness

Federal Reserve Chair Janet Yellen, speaking on the economy for the first time since the Fed's June meeting, said 'based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate.'

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Aaron Josefczyk/Reuters
US Federal Reserve Chair Janet Yellen speaks at The City Club of Cleveland in Cleveland on Friday, July 10, 2015.
  • By Martin Crutsinger Associated Press

| Washington

Federal Reserve Chair Janet Yellen said the Fed is on track to start raising interest rates later this year but expressed multiple concerns over headwinds that are still holding back the U.S. economy.

She described the outlook for the economy and inflation as "highly uncertain," amid lingering weakness in the labor market and new potential threats overseas.

Yellen, speaking on the economy for the first time since the Fed's June meeting, sees reasons for encouragement. Consumer spending appears to be picking up, and employment is likely to keep expanding, she said.

"Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate," Yellen said, referring to the Fed's key short-term interest rate, which has been at a record low near zero since December 2008.

But she also outlined a host of concerns, from low wage growth to a low labor participation rate to "disappointing" productivity. She reiterated that inflation is still well below the Fed's 2 percent target. Yellen also noted that cautious business owners "have not substantially increased their capital expenditures."

Yellen, whose comments came in a speech in Cleveland, says even when the Fed does start raising rates, the increases will be gradual.

There have been a number of since the Fed's June 16-17 meeting, including the on-going Greek debt crisis and a sharp plunge in China's stock market over the past month.

Yellen noted in her speech that the "situation in Greece remains unresolved." But she also said that the economic recovery in the 18-nation Eurozone "appears to have gained a firmer footing."

The recent problems have prompted many economists to push back their expectation for the Fed's first rate hike from September to December. The Fed's next meeting will occur on July 28-29, but there is no expectation the Fed will move at that session.

Yellen is scheduled to deliver the Fed's mid-year economic report to Congress next week.

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