Roundup: Yellen says Fed may raise interest rate this year

The Federal Reserve Chair Janet Yellen said on Friday that she expected the Fed to raise interest rates at some point this year, underlying the fact that economic outlook remains highly uncertain.

Speaking at the City Club of Cleveland of Ohio, Yellen 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 and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step."

She said many of the fundamental factors underlying U.S. economic activity are solid and should lead to some pickup in the pace of economic growth in the coming years.

She also outlined factors restraining the economic activities: business owners and managers remain cautious and have not substantially increased their capital expenditures despite the solid fundamentals and brighter prospects for consumer spending; While national home prices have been rising for a few years and home sales have improved recently, residential construction has remained quite soft. Many households still find it difficult to obtain mortgage credit.

She stressed that although the unemployment rate has dropped markedly during the economic recovery, it could not capture the extent of slack remaining in the labor market, citing reasons that the labor participation rate had been declining and the number of people working part time on the rise.

The U.S. economy contracted 0.2 percent in the first quarter due to severe winter weather and the labor dispute in the nation's west coast. Yellen said it was not the first time that the economy experienced downturn in the wintry first quarter, and she saw it as only transitory. A substantial rebound is widely expected in the second quarter.

The International Monetary Fund (IMF) forecast the U.S. economy would slow to 2.5 percent in 2015 and would pick up to three percent in 2016.

The Fed has kept the U.S. interest rate at near-zero level since the global financial crisis to lower borrowing costs in order to stimulate the economy from the worst economic crisis in decades. With the recovery going forward, the Fed remains cautious in lifting the rates, fearing it might disrupt the hard-earned recovery.

Yellen stressed that the initial increase in the federal funds rate, whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve.

"I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time," she added. Endite