Ms Yellen also warned that waiting too long to raise rates could risk a “nasty surprise” down the road, but that increasing interest rates too rapidly would push the economy into a new recession, reports The Telegraph.
“It is fair to say the economy is near maximum employment and inflation is moving toward our goal,” she said in a speech in San Francisco.
The timing of the next interest rate increase would depend on how the economy actually evolves over coming months, she added.
The Fed raised short-term interest rates in December for only the second time in a decade to a range of 0.5pc to 0.75pc. Ms Yellen said this reflected confidence that the US economy would continue to improve.
“Last month I and most of my colleagues were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3pc, a level which neither presses on the gas pedal so the car goes faster, nor eases off so the car slows down,” she said.
“Right now our foot is still pressing on the gas pedal. Our foot remains on the pedal so that we can make sure economic expansion remains strong enough to withstand an unexpected shock.”
Her speech comes two days before the presidential inauguration of Donald Trump.
The president-elect will inherit a healthy economy when he takes over. Unemployment has fallen to less than 5pc, from peaking at 10pc in 2009, the highest level in 25 years. During the financial crisis nine million US jobs were lost, Ms Yellen said, whereas 15 and a half million had been created over the past seven years.
Mr Trump has pledged to boost growth by cutting taxes, increasing federal spending on infrastructure and scrapping red tape that holds back business.
US central bankers are, however, bracing for an economic regime shift, the details of which Mr Trump has still not made clear.
The dollar rallied while Treasuries plunged after Ms Yellen’s speech. The yield on 10-year Treasury notes rose the most in a month, while the dollar spiked 1.1pc
