Federal Reserve Chairwoman Janet Yellen said Friday that she still expects the central bank to raise rates this year despite a weak first quarter and financial turmoil overseas.
"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," Yellen said in text prepared for a speech on the economy in Cleveland Friday.
Yellen's view of the economy spelled out Friday is more optimistic than those of some other members of the Fed. Investors were also skeptical that growth could pick up over the course of the year enough for the Fed to raise rates, with bond market prices signaling that rates were not expected to rise until sometime in 2016.
Yellen reiterate d the view that the slight contraction in economic output in the first quarter was due to "transitory factors," and not the beginning of a recession. Harsh winter weather and West Coast port strikes slowed commerce, she said, while in the background the strong dollar and falling oil prices slowed U.S. manufacturing and drilling.
But "many of the fundamental factors underlying U.S. economic activity are solid," according to Yellen.
The Fed has targeted short-term interest rates near zero since late 2008 in an effort to stimulate the economy. After years of large-scale bond purchases and promises to keep rates near zero for long periods of time, Yellen has been trying to steer the Fed toward more normal monetary policy to go along with the improving economy.
The Fed chairwoman cautioned that her economic forecast was "highly uncertain," and that if the expected growth doesn't materialize, the Fed will change course from raising rates.