Yellen says Fed has the "will" to tighten when needed

COEUR D'ALENE, Idaho (Reuters) - The Federal Reserve knows it needs to tighten monetary policy once the U.S. economy is on a stronger footing, but the early stages of recovery will be painfully slow, San Francisco Fed President Janet Yellen said on Tuesday.

"We glimpse the first solid signs ... that economic growth may be poised to resume. Indeed, I expect that to happen some time this year," Yellen said in comments prepared for a meeting of Oregon and Idaho bankers in Coeur D'Alene, Idaho.

When the economy eventually recovers, "we have the tools to tighten policy when the time is right, and we have the will to use them," Yellen added.

"I can assure you that we will act decisively and appropriately to tighten the stance of monetary policy and maintain price stability."

But Yellen said the weak labor market and downward pressure on wages remain a concern for now, while the slide in commercial real estate market poses a downside risk as well.

"A gradual recovery means that things won't feel very good for some time to come," she said. "I expect to see subdued consumer spending for some time."

Yellen, a voting member of the Fed's policy-setting Federal Open Market Committee in 2009, dismissed suggestions that inflation is on the verge of jumping as a result of the Fed's expansionary monetary policies.

"Will this expansion of credit and bank reserves create high inflation? My answer is no," she said.

"Monetary policy fosters inflation when it loosens the stance of policy enough to create excess demand for goods and services. Right now, we have exactly the opposite."

Core inflation, stripped of food and energy price rises, will likely remain below 2 percent for several more years, Yellen added.

Similarly, large budget deficits by themselves "do not cause high inflation automatically," the policy-maker said.

With the United States still in what could become the most severe recession since the Great Depression, current fiscal policy "in my view, is entirely appropriate," she said.

(Editing by James Dalgleish)