Investing.com -- Federal Reserve chair Janet Yellen said on Friday that she thinks an interest rate hike will be appropriate at some point in the year if there is enough improvement in the U.S. economy.
Following lift-off, Yellen said the pace of subsequent rate hikes should be gradual, adding that she believes it could be several years before the Federal Reserve's benchmark Fed Funds Rate returns to normal. Yellen attributed the slowdown of economic growth in the first quarter to a variety of transitory factors, including unusually cold temperatures in the winter and a slowdown in activity due to a West Coast port labor dispute. In addition, she expects economic data to strengthen for the remainder of the year and anticipates moderate economic growth for the rest of 2015, as economic headwinds wane.
Still, Yellen appeared to be pessimistic about the current state of the labor market. In April, hourly earnings for U.S. workers increased only 0.1% from the previous month, but were up 2.2% on a year-over-year basis.
“The generally disappointing pace of wage growth also suggests that the labor market has not fully healed,” Yellen said. “Even with the significant gains in the past couple of years, it is only now, six years after the recession ended, that the labor market is approaching full strength."
Earlier on Friday, the U.S. Bureau of Labor Statistics said its headline Consumer Price Index in April gained 0.1% from the previous month, slightly below economists' forecasts. Over the last 12 months, the CPI-U all items index is down by 0.2%.
A reading of the less volatile Core CPI Index, which excludes food and energy prices, was ostensibly less deflationary. The Core CPI rose 0.3% for the month, its highest gain since January, 2013, and 1.8% on a year-over-year basis. The Fed would like to see inflation move to its targeted goal of 2% before it raises rates.
"Inflation has been held down by the continued economic weakness during the slow economy and more recently by lower prices of imported goods, as well as the fall in oil prices," Yellen said. "With oil prices no longer declining and the public's expectations of further inflation apparently stable, my colleagues on the Federal Open Market Committee and I believe that CPI will move up to 2% as the economy strengthens further and as other temporary factors weighing on inflation recede."
When the FOMC last met in late-April, only a few of its members supported an interest rate hike in June, according to minutes released from the meeting on Wednesday. It is becoming increasingly likely that the Fed will delay a rate hike to September, or possibly even December.
The Dow Jones Industrial Average gained more than 25 points to 18,275.89 roughly 15 minutes after Yellen's prepared remarks were released, while the S&P 500 Composite index was relatively unchanged at 2,130.45. The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, increased slightly by 0.16 points to 96.24.
Yellen made the remarks at a luncheon on Friday at the Greater Providence Chamber of Commerce.