The Fed's key policy rate, the federal funds rate, currently stands in a range of 1 per cent to 1.25 per cent. The last three increases occurred in December, March and June.
Many analysts believe the Fed will raise rates one more time this year, either in September or December.
Yellen's appearance took on a bit of a valedictory tone, given that her current four-year term as chair will end in early February before the next round of congressional hearings. At one point, she acknowledged that her appearance Wednesday before the House panel and on Thursday before the Senate Finance Committee could be her last time to present the Fed's semiannual Monetary Policy Report to Congress.
Yellen, the first woman to head the Fed in the central bank's 100 year history, was asked several times if she would accept another term if President Donald Trump offered it. She didn't provide a direct answer.
"I am very focused on trying to achieve our congressionally mandated objectives and I really haven't had to give further thought at this point" to the question of serving a second term," Yellen said.
Yellen repeated the message she has been sending all year that the U.S. economy no longer needs the extraordinary support the central bank began providing in 2008 in the wake of a severe financial crisis and the deepest recession since the 1930s.
Since the depths of the recession, unemployment is now down to 4.4 per cent, near a 16-year low. And while the economy started the year with a sluggish growth rate of just 1.4 per cent, it has regained momentum in recent months, helped by strong job gains, a revival of business investment and a strengthening of overseas economies.
But Yellen cautioned that "considerable uncertainty always attends the economic outlook." Those include whether inflation will indeed pick up, as well as questions about how much of President Donald Trump's economic program will make it through Congress.
She noted that while the global economy appears stronger, "a number of our trading partners continue to confront economic challenges."
At times during the hearing, Yellen sparred with her Republican critics who have criticized the Fed's easy credit policies and its efforts to tighten bank regulations in the wake of the 2008 financial crisis.
On Monday, Trump nominated Randal Quarles, a former top Treasury official in two previous GOP administrations, to take the job as vice chairman at the Fed for bank supervision, marking the administration's first effort to reshape Fed policies.
Including the post Quarles would fill, the Fed has three vacancies on the seven-member board. All of Trump's nominations will require Senate approval.
During last year's presidential campaign, Trump was critical of the central bank for its low-rate policies, which he said were helping Democrats, and for its efforts to enact tougher regulations on banks in response to the financial crisis.
The Fed slashed its key policy rate to a record low near zero in December 2008 to combat the worst economic downturn since the 1930s - and kept it there for seven years.
At its June meeting, the Fed signaled that it expected to begin shrinking its $4.5 trillion balance sheet later this year, a step that could push up longer-term rates for such items as home mortgages.
In her testimony, Yellen repeated the Fed's plans to increase the level of bonds that will be sold off each month at a gradual rate to give markets time to adjust. At its June meeting, the Fed announced that it planned to begin reducing its holdings by US$10 billion per month and Yellen said Wednesday that she still hoped that effort could begin "relatively soon."
The Fed's holdings have surged five-fold since 2008, ballooning in size as the Fed bought Treasury and mortgage bonds as a way to put downward pressure on long-term interest rates.
In her testimony, Yellen took note of a number of encouraging factors, including strong job gains and rising household wealth that she said should fuel economic growth over the next two years.
