Spotlight: U.S. Fed chair evasive about rate hike timing

U.S. Federal Reserve Chairwoman Janet Yellen said Monday that gradual interest rate hikes remain appropriate, but avoided providing precise timing for the central bank's next move.

"The positive economic forces have outweighed the negative, and despite the challenges that the economy continues to face, I continue to expect further progress toward our employment and inflation objectives," Yellen said in a speech at the World Affairs Council of Philadelphia on Monday.

However, Yellen avoided giving the timeline for further rate hikes by saying that she expected the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run.

The stance was in contrast to her remarks on May 27, when she said rate hikes in coming months might be appropriate.

To some investors, the absence of a timeframe in Monday's speech suggested the Fed would delay its next rate hike well beyond next week, when U.S. central bankers gather to make monetary policy.

Economists now see September or possibly July as the most likely time for a quarter-point policy tightening, while traders in futures markets are betting on later in the year.

Some analysts hold that the reason for her current prudent remarks might be found in the recent disappointing job data.

The May jobs report, the worst in nearly six years in terms of monthly jobs creation, had posed new questions and that the situation would have to be watched in case of a broader slowdown.

The total nonfarm payroll employment increased by only 38,000 in May, the weakest performance since September 2010.

And while the unemployment rate fell to 4.7 percent, the lowest since November 2007, it was mainly because of people dropping out of the labor market rather than people getting jobs.

However, Yellen said in her speech that one should never attach too much significance to any single monthly report, and that other timely indicators from the labor market have been more positive.

In her speech, she cautioned over a number of uncertainties facing U.S. growth, including the strength of consumer spending, low productivity growth in the country and low inflation.

Yellen stressed that the growth of the economy depended on domestic demand, especially its main fuel: consumer spending.

And a key question is whether U.S. demand can remain strong "amid fairly considerable global bumpiness," said Yellen, adding a particular concern is weakness in investment spending by U.S. companies, a slowdown that she said she thinks will prove temporary.

As for the problem of low productivity, Yellen said that even as the job market is getting better, the country's overall economic growth has been tepid, which is partly because productivity has been so weak.

Productivity is a vital factor supporting rising living standards, and the Fed chair said that economists are divided over whether the productivity slowdown will soon end.

The Great Recession depressed spending on research and development needed for future productivity growth, said Yellen, adding that once this spending rebounds, productivity gains could accelerate.

While noting that the U.S. inflation has been running below its 2 percent target for four years, Yellen said one reason for concern is that some surveys of long-term inflation expectations by consumers and businesses have declined.

If that trend continued, she said, it could make it harder for inflation to reach the Fed's target. When inflation is too low, it can depress spending, hold back growth and make the cost of loans more burdensome.

However, for all the uncertainties she mentioned on Monday, Yellen said she still expected the job market to keep strengthening, wages to grow and inflation to rise toward the Fed's target. Endi