Last Updated May 22, 2015 2:23 PM EDT
Federal Reserve Chair Janet Yellen on Friday said the U.S. economy continues to recover from the Great Recession, with the labor market "approaching full strength" but not yet there.
"I say 'approaching,' because in my judgment we are not there yet," Yellen told a gathering of business leaders in Providence, Rhode Island.
Preliminary data had the U.S. economy growing only 0.2 percent in the first quarter, and many economist expect the final read could show it contracted amid harsh weather, a strong dollar and declines in spending by the energy sector.
"My guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time," said Yellen. "Some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen."
Paul Ashworth, chief U.S. economist at Capital Economics, noted a subtle change in position from the statement that came with the last Federal Open Market Committee (FOMC) session. "The key words are 'apparent' and 'largely,' if you look at the FOMC statement from last time, that said 'in part,' so 'largely' is a bit stronger than 'in part,' and instead of an 'actual' slowdown, we have an 'apparent' slowdown."
Yellen's "willing to go a bit further and seems to be buying more into the idea that Q1 was weak" because of the weather and other transitory factors, Ashworth said. "Therefore she expects a bigger bounce."
The unemployment rate has fallen steadily to 5.4 percent in April, and is near levels that are likely sustainable in the long run without fueling inflation, Yellen said. "But the unemployment rate today probably does not fully capture the extent of slack in the labor market," she added.
Noting largely stagnant hourly wages, the Fed chief called "encouraging" pay increases by some large companies, including Wal-Mart (WMT) and Target (TGT), and "might be a sign that larger wage gains are on the horizon."
Market watchers and economists were looking for indications from Yellen as to when the Fed might start raising interest rates for the first time in nearly a decade.
Minutes of the Fed's April meeting released this week showed Yellen and other Fed members were concerned that bond yields close to record lows could spike once the central bank begins hiking rates, which could increase the cost of consumer loans, from mortgages to car payments, and potentially harm the U.S. recovery.
In 2013, Ben Bernanke, at the time chairman of the Fed, hinted that the Fed might start tapering its bond purchases, a program otherwise know as quantitative easing and intended to bolster the economy. Treasury yields surged in response.
Fed officials have generally signaled they would probably raise rates in 2015, leaving the timing unclear. The Fed's April meeting left the impression that a June move was unlikely, with many market observers and economist now looking to September as the likely liftoff month.
Yellen's speech on Friday did not seem to change that view, with the Fed chief reiterating that the central bank would likely lift rates later this year, something she has said consistently over the last few months.
"If we actually get a turnaround they'll be a rate hike in let's say in September, regardless what anyone believes about Q1," said Ashworth. "July is not completely out of the question, but certainly by September the Fed would know one way or the other whether the economy is back on track."
The central bank reiterated at its April policy session that it would hold off until it sees more improvement in the jobs market and is "reasonably confident" inflation will climb to its 2 percent target in the medium term.
The Labor Department on Friday reported core consumer prices rose 0.3 percent in April, showing that the cost of living excluding food and energy increased at its most rapid pace since January.