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At a time of growing speculation about a possible hike in interest rates, Federal Reserve Chair Janet Yellen waded cautiously Friday through a difficult issue: How will the Fed know when it鈥檚 time for that rate hike to happen?

It鈥檚 a question with big import for the US and world economies, which are currently growing but not exactly roaring on all cylinders. When the Fed raises its short-term interest rate for US banks 鈥� or even hints that it鈥檚 close to doing so 鈥� the event can send shockwaves through global financial markets.

In , Friday, Chair Yellen gave some expected signals 鈥� notably that she doesn鈥檛 see a rate hike as imminent, and that job market conditions, not just inflation, should play a crucial role in the decision.

But she also implied that policymakers aren鈥檛 perfect forecasters of their own actions.

Already, she noted, the labor market has been improving faster than the Fed鈥檚 policy committee expected. A rate hike could be called for, Yellen said, 鈥渋f progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated.鈥�

Her call for pragmatism seemed to sit well with investors. US stock markets were little changed as the closely watched speech 鈥� part of an annual conference of economists in the shadow of the Grand Teton mountains 鈥� was released.

Still, her comments underscore that the Fed is now in difficult and somewhat uncharted terrain.

The day of an interest-rate hike 鈥� anticipated currently to lie some time during 2015 鈥� has been indisputably drawing closer. And economists say it鈥檚 far from assured that the Fed can navigate a gentle 鈥渆xit鈥� from its post-recession era of exceptionally low interest rates.

Yellen also emphasized how imperfect the Fed鈥檚 knowledge is. She emphasized various labor-data subtleties on both sides of the debate over whether the labor market is still 鈥渟lack鈥� and inflation pressures low.

鈥淎s a consequence鈥� of this uncertainty, she said, 鈥渕onetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.鈥�

Is that Fedspeak for, 鈥渨e鈥檝e got the finesse to handle this鈥� or for 鈥渨e really don鈥檛 know what we鈥檙e doing right now鈥�? Even if the answer conveys a bit of inside-the-Fed anxiety, that鈥檚 not necessarily a bad thing.

Yellen is known as a thorough studier of the economy who doesn鈥檛 prejudge the right course for policy.

As of mid-year, a 鈥渄ot plot鈥� of Fed officials鈥� views suggests that the Fed鈥檚 short-term interest rate may rise from near zero today to 1 percent or so by the end of 2015, to about 2.5 percent by the end of 2016, and ultimately toward a long-run level of about 3.75.

Whenever a rate hike comes, there鈥檚 the question of what it will mean for the economy. Yellen and her colleagues want to be careful not to inflict harm on economic growth.

鈥淵ellen seems content to normalize [interest rates] slowly until she sees the white in the eyes of inflation,鈥� economist Tim Duy at the University of Oregon wrote prior the Jackson Hole speech.

Some economists say investor fears of dire outcomes when rates do start rising may be overblown.

鈥淭he economy should do well in the face of higher rates,鈥� as long as the shift isn鈥檛 accompanied by some other shock such as from federal budget policy or the weather, Ethan Harris of Bank of America Merrill Lynch says in a report for clients this week.

Yellen, for her part, emphasized the Fed鈥檚 鈥渄ual mandate鈥� from Congress is to set monetary policy based on the goal of full employment as well as inflation.

The balance of indicators, embodied in a Fed labor-market index, suggests that the current 6.2 percent unemployment rate 鈥渟omewhat overstates the improvement in overall labor market conditions,鈥� she said.

For example, as the job market improves, some people who are now counted as retired, in school, or disabled may return to the job market, for example. For now, those people are not counted as unemployed.

Yellen implied also that the Fed could allow long-subdued wage growth to pick up a bit 鈥渨ithout exerting any meaningful upward pressure on inflation.鈥�

Such wage growth may aid the cause of full-employment, she said, by helping to draw more Americans back into the job market. By contrast, tightening monetary policy as soon as inflation reaches the Fed鈥檚 target of about 2 percent a year could harm the economy, she said.

鈥淸It] might, in this case, prevent labor markets from recovering fully,鈥� she said, 鈥渁nd so would not be consistent with the dual mandate.鈥�