Yellen says expects rate hike this year, but cites labor weakness

Federal Reserve chair Janet Yellen on Friday said she expects the Fed to raise interest rates at some point this year, but pointed strongly to her concerns that U.S. labor markets remain weak and that more workers could be encouraged back into the job market with stronger growth.

In her speech Yellen gave no direct hint about whether she anticipates more than one rate hike over the Fed's four remaining meetings of 2015. But her focus on domestic economic developments looked beyond recent market turbulence over Greece and China, and keeps the Fed's plans on track.

She said she expects the economy should grow steadily for the remainder of the year, allowing the Fed to move ahead with its first rate hike in nearly a decade.

"I expect 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 a speech to the City Club of Cleveland, a civic group that sponsors high-level speakers.

"But I want to emphasize that the course of the economy and inflation remains highly uncertain...We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years."

U.S. Treasury yields rose and the dollar rallied against a basket of currencies after Yellen's remarks, while stocks modestly pared gains.Despite the improvement of recent years, she said labor markets remain out of line, with high levels of part-time work and weak participation rates.