The bank's next meeting on monetary policy is on March 14 and 15.
Speaking to Congress she said delaying rate hikes would be "unwise", and could leave the Fed having to move too fast later, risking causing a recession.
In December the Fed raised its benchmark interest rate by 0.25%, only the second increase in a decade.
It had kept its main lending rate near zero for seven years. before raising it in December 2015 and again last December.
Addressing Congress for the first time since Donald Trump became president, Ms Yellen again repeated that although the Fed expects to raise rates gradually, getting them back to normal levels was important.
She added: "Waiting too long to remove accommodation would be unwise, potentially requiring [the Fed] to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.
"At our upcoming meetings [we] will evaluate whether employment and inflation are continuing to evolve in line with [the Fed's] expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.''
She did not say whether the Fed expected three rate increases this year, as it had indicated in December.
Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington, said: "Yellen is trying to nudge the expectations for a rate hike in March higher."
He added: "This doesn't mean they will move in March, but the Fed wants to have the option to move."
After her comments the dollar was up 0.3% against the dollar and 0.5% against sterling.
Source: BBC Business News