Yellen says Fed on course for 2015 rate rise

A first-quarter economic chill won't deter the Federal Reserve from its plan to raise interest rates this year, chair Janet Yellen said, assuring investors the pace of subsequent tightening would be gradual.

Although the labor market is nearing full strength, "we are not there yet," she said Friday in a speech in Providence, R.I., emphasizing that the Fed would proceed cautiously.

If the economy continues to improve as she expects, "it will be appropriate at some point this year" to start raising rates, Yellen, 68, said in her first public comments on the policy outlook since late March.

Her comments show a determination to act this year, while avoiding a shock to the still-fragile economy by stressing that the cost of everything from car loans to mortgages will stay low for years. The Fed has kept rates near zero since December 2008.

"It's clearly going to be one of the most dovish tightenings you'll ever see," said Dana Saporta, U.S. economist at Credit Suisse Group AG in New York.

Fed officials want to avoid surprising investors, as they did in mid-2013 when bond yields soared, minutes of the April 28-29 Federal Open Market Committee meeting released on Wednesday show.

Yellen said the best way for the Fed to achieve its policy goals would be "by proceeding cautiously, which I expect would mean that it will be several years before the federal funds rate would be back to its normal, longer-run level."

She repeated the Fed's two criteria for raising rates: "I will need to see continued improvement in labor-market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term."

Policy makers expect growth to pick up after stalling in the first quarter, even as they fret about the strength of the consumer spending that makes up two-thirds of the economy, the April minutes show.

Yellen said the United States "seems well-positioned for continued growth" as consumers benefit from cheaper gasoline prices that amount to a boost to purchasing power estimated at about $700 per household on average.