By Jon Hilsenrath And Jeffrey Sparshott 

Federal Reserve Chairwoman Janet Yellen said the central bank is on track to raise interest rates this year but will likely proceed cautiously because the job market hasn't fully healed, inflation is low and growth has again disappointed.

It could be "several years," she said Friday, before the Fed's benchmark short-term rate is back to a level the central bank considers to be normal in the long-run. Fed officials have held the rate near zero for more than six years and see it getting to 3.75% someday. Their March forecasts showed that even at the end of 2017, they expected the rate to still be below that level.

The Fed expects economic growth to pick up in the months ahead. Her speech in Providence, R.I. came a few hours after the Labor Department reported signs inflation is stabilizing, which should give the central bank more confidence about the economy's strength.

The consumer-price index rose for the third consecutive month in April, reversing a three-month slide largely associated with falling energy prices. Consumer prices were still lower than they were a year ago after the earlier declines, but underlying inflation outside of the volatile food and energy sectors has stabilized. That could be a sign that broader consumer-price declines have run their course and that the economy, even after a weak first quarter, is not in a deepening slump.

Fed officials don't want inflation too high, because it eats away at consumer purchasing power. But they also don't want it too low, because that signals broader weakness in demand in the economy for consumer goods. The Fed's goal is 2% inflation and their preferred measure of it, the Commerce Department's personal consumption expenditures price index, has been running below that goal for nearly three years.

The Fed has said officials want to be "reasonably confident" that inflation will move back to 2% over the medium term before taking an initial step on rates.

"Where does [Friday's] data leave the Fed? Certainly another step closer to liftoff," said Stephen Stanley, chief economist at Amherst Pierpont Securities, referring to the time of the central bank's first rate increase in nearly 10 years.

Ms. Yellen's speech before the Greater Providence Chamber of Commerce, made just a few weeks before the Fed's next policy meeting June 16-17, were the latest indication the central bank is unlikely to start raising its benchmark rate at that gathering but could do so later in the year if the economy gains steam.

"I think it will be appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy," Ms. Yellen said in Friday's speech.

Many investors expect the first Fed rate increase in September. Minutes from the central bank's April policy meeting showed that a move at the June meeting was unlikely.

Ms. Yellen made clear Friday that because of the cloudy economic outlook, the Fed will be in no hurry to raise rates after that initial increase. "The [Fed's] objectives of maximum employment and price stability would best be achieved by proceeding cautiously," she said.

The job market, she argued in her speech, wasn't back to full strength. Even though the unemployment rate has dropped to the relatively low level of 5.4% in April, it "probably does not fully capture the extent of slack" in the economy, she said.

Many people have dropped out of the labor market, discouraged about their prospects and others are working in part-time jobs when they want full time employment. "The generally disappointing pace of wage growth also suggests that the labor market has not fully healed," she said.

"Even with the significant gains in the past couple of years, it is only now, six years after the recession ended, that the labor market is approaching full strength," she said. "I say 'approaching' because in my judgment we are not there yet."

Despite the headwinds and disappointments, households are benefiting from more jobs and the drop in oil prices is a boost to household incomes, worth about $700 per household, Ms. Yellen noted.

Fed officials projected in March that the economy would grow at a pace around 2.5% this year and next. They will update those forecasts at their June meeting.

Ms. Yellen noted that Rhode Island was hit hard in the 2007-09 recession and has seen slow and incomplete progress since then.

That was a fair assessment, said Laurie White, president of the Greater Providence Chamber of Commerce, which hosted the speech.

"Our state has lagged in terms of recovery," Ms. White said in an interview. But she also pointed to the recent drop in joblessness--the state's unemployment rate in March was 6.3%, down from 8.2% a year earlier--among other reasons for hope. "There is a palpable feeling that we're breaking out of this malaise in Rhode Island," she said.

Likewise, headwinds to national economic growth have abated but haven't disappeared. On Ms. Yellen's list of forces holding back the expansion, she added a new factor that is getting increased attention inside the U.S. central bank: China, the world's second-largest economy, is slowing, with uncertain effects on the rest of the world.

"Initially the euro-area crisis was the biggest headwind coming from the rest of the world," Ms. Yellen said, referring to turbulence in the countries that use the euro. Now, she noted, "growth in many other parts of the global economy, including China and some other emerging market economies, has slowed.

Weak growth abroad, together with its accompanying implications for exchange rates, has dented U.S. exports and weighed on our economy."

Ben Leubsdorf in Providence, R.I., contributed to this article.

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Jeffrey Sparshott at jeffrey.sparshott@wsj.com