"Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy," she said. "For this reason, if the economy continues to improve as I expect, 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."
The rates Yellen refers to have remained close to zero since December 2008, in an effort to boost economic growth during the aftermath of the recession. The slowdown in economic growth during the first quarter of 2015, along with weak, but improving, employment and inflation data, largely caused the Fed to shy away from a rate hike during its June meeting, economists say.
In the minutes of the Fed's April meeting, released on Wednesday, "many" Fed officials said a June liftoff is "unlikely." Though all options are on the table.
Yellen also reiterated the central bank's reliance on data when it comes to triggering any rate-hike decisions.
"To support taking this step [of raising rates], however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2% over the medium term," she said.
There is evidence of improving inflation.
The consumer price index rose 0.1%, the Bureau of Labor Statistics said on Friday, matching economists' expectations. Excluding food and energy prices, the CPI rose 0.3%, slightly ahead of forecasts. On a year-over-year basis, the CPI dropped 0.2%, while core CPI rose 1.8%.
Though once rates do rise, Yellen insists the increases will be 'gradual.'