Federal Reserve Chair Janet Yellen said prospects are good for further improvement in the labor market and the economy, keeping the central bank on track for an interest-rate increase in 2015.
"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target," Yellen said in testimony Wednesday before the House Financial Services Committee in Washington. She said Fed officials expect growth "to strengthen over the remainder of this year and the unemployment rate to decline gradually."
Yellen, 68, again emphasized that the timing of the first rate rise in almost a decade is less important than the subsequent path of increases, which she said would be gradual. She said Fed forecasts for higher rates this year are projections and "not statements of intent to raise rates at any particular time."
In the first of two scheduled days of testimony before Congress, Yellen repeated that the Fed will tighten policy when it sees more improvement in the labor market and is "reasonably confident" that inflation will head back toward 2 percent in the medium term.
Responding to questions, Yellen said that the Fed could decide to raise rates at any meeting, not just those that are typically followed by a previously scheduled news conference. She also said that raising rates sooner could allow the Fed to follow a more gradual path later, while waiting to tighten could mean a faster pace.
Yellen came under fire from Jeb Hensarling, chairman of the Financial Services Committee, for the Fed's handling of an internal investigation of a 2012 leak of confidential policy information.
Hensarling, a Republican from Texas, said the Fed had "crossed the line" by failing to comply with a subpoena for documents. He also said the Fed's guidance on the likely path of monetary policy is "opaque" and said the Fed's actions should be more predictable.
Yellen said the Fed is seeking to cooperate with the committee and that complying with the subpoena would interfere with an existing criminal investigation by the Department of Justice.
"We fully intend to cooperate with you to provide the documents you requested but we are not going to provide them now," she said in a heated exchange with Sean Duffy of Wisconsin.
"Madame chair, it appears that you are the one who is jeopardizing, or the Fed is the one who is jeopardizing, this investigation," Duffy said.
Yellen's testimony on the economy was similar to a speech she gave on July 10. She again acknowledged concerns over the situation in Greece and added China to her list of overseas risks.
Still, she sounded a note of optimism, saying that "economic growth abroad could also pick up more quickly than observers generally anticipate, providing additional support for U.S. economic activity."
She added that "the U.S. economy also might snap back more quickly as the transitory influences holding down first-half growth fade and the boost to consumer spending from low oil prices shows through more definitively."
Forecasts issued by the Federal Open Market Committee in June implied two quarter-point rate rises this year, followed by a shallower path of increases than officials predicted in March. The forecasts were included in a Monetary Policy Report released by the Fed Board along with her testimony.
While the median forecast of policymakers called for two increases by year-end, a larger number of officials said just one would be enough.
The Fed is likely to make its first move in September, according to 76 percent of 51 economists surveyed by Bloomberg from July 2 to July 8. Futures traders are less confident. A Morgan Stanley index based on futures trading shows the Fed won't act until early 2016, while federal funds futures show the probability for a move in September of just 33 percent.
Yellen's testimony comes amid signs the economy is gaining momentum after a first-quarter contraction. Gross domestic product is forecast to expand at a 2.7 percent rate in the second quarter, according to a Bloomberg survey of 75 economists.
The Fed chair took note of progress in a labor market that has generated more than 2.9 million jobs in the past 12 months. Unemployment fell in June to 5.3 percent, its lowest in more than seven years.
Still, Yellen said that while "labor market conditions have improved substantially, they are, in the FOMC's judgment, not yet consistent with maximum employment."
While she sees "tentative signs that wage growth has picked up, it continues to be relatively subdued, consistent with other indications of slack," she said.
Yellen voiced optimism that inflation would continue to inch upward. The Fed's preferred gauge of inflation has lingered below its 2 percent target for more than three years.
Lower oil prices, while suppressing inflation, were also expected to have a positive impact on the economy by leaving consumers with more money to spend on other goods and services.
Still, household spending has disappointed as consumers have used their energy windfall to pay down debt and put more money in the bank. Retail sales unexpectedly fell 0.3 percent in June, a report on Tuesday showed.
Appearing to anticipate questions about Fed accountability, Yellen emphasized the central bank's commitment to transparency, noting her quarterly news conferences and the publication of committee members' forecasts as recent innovations.
She said "effective communication" was "crucial to ensuring that the Federal Reserve remains accountable."
At the same time, she warned against "measures that affect the ability of policymakers to make decisions about monetary policy free of short-term political pressure."
Yellen will complete her semiannual congressional testimony Thursday before the Senate Banking Committee. Headed by Alabama Republican Richard Shelby, that panel in May approved a proposal that would ease regulations for midsized banks and toughen oversight of the Fed.