Stocks added to gains on Friday morning after Federal Reserve Chair Janet Yellen made the case for another rate hike. 

The S&P 500 was up 0.58%, the Dow Jones Industrial Average added 0.53%, and the Nasdaq rose 0.7%. Shortly after Yellen's remarks went public, stocks teetered near the flatline before adding to earlier gains. 

The U.S. economy has strengthened to the point where another rate hike will soon be warranted, Yellen said in a widely anticipated speech at the Economic Policy Symposium in Jackson Hole, Wyo.

"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said in a speech prepared for delivery to the Jackson Hole summit.

Yellen said she expects "moderate growth" in GDP and further tightening in the labor market over the next few years. She also reiterated that the decision on interest rates will "always depend on the degree to which incoming data continues to confirm the Fed policy committee's outlook."

The chances of a September rate hike currently sit at 21%, according to CME Group fed funds futures. A rate hike in December has better chances at 43%.

The Fed's promises for gradual rate increases is hurting its credibility and possibly hindering the economy, St. Louis Fed President James Bullard told CNBC on Friday. Bullard, a voting member of the policy committee, said that the process is "affecting global pricing" and hopes the Fed and market expectations begin to line up with a "more realistic assessment of what is going to happen." Bullard expects one rate hike over the next two-and-a-half years.

Separately, Cleveland Fed President Loretta Mester told CNBC that economic improvements mean that it "makes sense" to start moving interest rates higher. Mester, another voting member of the committee this year, expects the economy to pick up momentum in the second half of the year. 

Fed members headed to Jackson Hole for their closely-watched two-day summer summit on Thursday. Prominent central bankers, finance ministers and economists from around the world meet annually to discuss economic trends and monetary policy action.

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Fed members' confidence in the U.S. economy soothed investors' fears over earlier data that showed weaker growth over the second quarter. The U.S. economy grew 1.1% over the second quarter, according to the second estimate of GDP from the Bureau of Economic Analysis. The downward revision from 1.2% was as analysts had expected. Weaker manufacturing activity caused by slower international demand and a stronger U.S. dollar put a cap on U.S. economic growth last quarter. Consumer spending remained strong with estimates raised to 4.4% from 4.2%.

The U.S. trade gap narrowed to $59.3 billion in July, the Commerce Department said Friday. The June deficit was $64.5 billion.

Consumer sentiment dipped in August as views over personal finances turned weaker, even as expectations over economic growth improved. The final reading from the University of Michigan fell to 89.8 in August from 90 in July. Analysts had expected the reading to improve to 91. 

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