Fed's Yellen sees rates hikes, mostly good economic picture

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Yellen: Fed Funds Rate Needs to Rise Gradually Over Time

PHILADELPHIA, June 6 (Reuters) - Federal Reserve Chair Janet Yellen said on Monday that interest rate hikes are likely on the way because "positive economic forces have outweighed the negative" for the United States now that risks from earlier this year have diminished.

In the last public comment from any U.S. central banker before a key policy meeting next week, the Fed chief said last month's jobs report was "disappointing" and bears watching, though she warned against attaching too much significance to it on its own.

SEE ALSO: Fed keeps rates unchanged, signals faith in U.S. economy

In her address, Yellen was careful not to give timelines on raising interest rates, in contrast to a speech on May 27, when she said "probably in coming months such a move would be appropriate."

While on Monday Yellen stressed that surprises could emerge that could change her expectations, the speech was broadly buoyant, with Yellen listing four main risks to the U.S. economy - slower demand and productivity, and inflation and overseas risks - before downplaying them all.

"If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate," Yellen said at the World Affairs Council of Philadelphia.

The U.S. central bank raised rates from near zero in December in the first U.S. policy tightening in nearly a decade.

Prospects of another hike this month were all but killed by a report last week showing only 38,000 jobs were created in May, somewhat muting recent upbeat data on consumer spending, housing and overall U.S. growth.

Although the report was "concerning, let me emphasize that one should never attach too much significance to any single monthly report," Yellen said. "Other timely indicators from the labor market have been more positive."

Amid the "countervailing forces," she said, "I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones. As a result, I expect the economic expansion to continue, with the labor market improving further and GDP growing moderately."

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.

The dollar initially rose following Yellen's comments but later retraced, and financial markets did not give an appreciable signal on whether investors saw more or less chances of a rate hike in the near future. U.S. stock prices were about flat compared to their levels just before the speech.

While Yellen did not repeat her line from a week-and-a-half ago when she said rate hikes would probably be appropriate in coming months, she said she remained optimistic inflation would rise to the Fed's 2-percent goal because oil prices had reversed their downward path and the dollar had steadied after a long period of gains. (Reporting by Jonathan Spicer and Jason Lange; Editing by Andrea Ricci)

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Federal Reserve raises key interest rates for first time since 2006, Janet Yellen, markets react
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Fed's Yellen sees rates hikes, mostly good economic picture
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react after it was announced that they Federal Reserve would increase interest rates December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work as Janet Yellen, chair of the U.S. Federal Reserve, is seen speaking on a television screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Pedestrians walk past the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
WASHINGTON, USA - DECEMBER 16: Federal Reserve Chairwoman Janet Yellen holds a news conference after the Federal Reserve made the announcement that it was raising its interest rate in Washington, USA on December 16, 2015. The raising of rates a quarter point comes seven years after they dropped the rates to near zero during the financial crisis. (Photo by Samuel Corum/Anadolu Agency/Getty Images)
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be gradual and in line with previous projections. Photographer: Andrew Harrer/Bloomberg via Getty Images
Federal Reserve Chair Janet Yellen speaks during a press conference following the announcement of an historic rate increase, the first since 2006, in Washington, DC, December 16, 2015. The Federal Reserve announced Wednesday its first interest rate increase in more than nine years in a landmark move signaling the US has finally moved beyond the 2008 crisis. The Fed raised the benchmark federal funds rate, locked near zero since the Great Recession, by a quarter point to 0.25-0.50 percent, saying the economy is growing at a moderate pace and should accelerate next year. AFP PHOTO / SAUL LOEB / AFP / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
WASHINGTON, DC - DECEMBER 16: Federal Reserve Bank Chair Janet Yellen holds a news conference where she announced that the Fed will raise its benchmark interest rate for the first time since 2008 at the bank's Wilson Conference Center December 16, 2015 in Washington, DC. With unemployment at 5-percent and the economy showing signs of strength, the Fed raised the interest rate a quarter of a percentage point and many experts believe the interest rate on short-term loans could go as high as one percent by the end of 2016. (Photo by Chip Somodevilla/Getty Images)
NEW YORK, NY - DECEMBER 16: A trader works on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : A trader in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) yawns as he reacts to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, Dec. 16, 2015. The Federal Reserve raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be 'gradual' and in line with previous projections. Photographer: Michael Nagle/Bloomberg via Getty Images
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
CHICAGO, IL - DECEMBER 16 : Traders in the Standard & Poor's 500 stock index options pit at the Chicago Board Options Exchange (CBOE) react to the Federal Reserves interest rate hike December 16, 2015 in Chicago, Illinois. The Federal Reserves raised the interest rates for the first time since 2006 by 0.25 percentage points. (Photo by Joshua Lott/Getty Images)
NEW YORK, NY - DECEMBER 16: Traders work on the floor of the New York Stock Exchange (NYSE) following an announcement that the Federal Reserve will raise interest rates for the first time in nearly a decade on December 16, 2015 in New York, United States. The Fed approved a quarter-point increase in its target funds rate. The new target will go from 0 percent to 0.25 percent. (Photo by Spencer Platt/Getty Images)
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