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 In her first public comments since the Fed's meeting last week
Yellen laid out what now appears the base case at the U.S. central
bank - that low unemployment, continued growth and faith in a coming
return of inflation means the country is ready for higher interest
rates.
Her remarks pushed bond yields higher and stocks lower. They also
caused investors to reset their expectations of a December rate hike
above 60 percent, a sign that markets are finally taking the Fed's
language seriously after a period in which U.S. central bankers were
frustrated by the gap between their own outlook and market bets
about their likely course of action.
"What the committee has been expecting is that the economy will
continue to grow at a pace that is sufficient to generate further
improvements in the labor market and to return inflation to our 2
percent target over the medium term," Yellen said at a House
Financial Services Committee hearing.
"If the incoming information supports that expectation then our
statement indicates that December would be a live possibility."
 William Dudley, the influential president of the New York Fed and a
permanent voter on policy, said later on Wednesday that he would
"completely agree" with Yellen. December "is a live possibility, but
we'll see what the data shows," he told reporters in New York.
Yellen, Dudley and the other 15 Fed policymakers now have six weeks
to analyze new data, debate and decide whether at their Dec. 15-16
meeting to end the ultra-low interest rates set in response to the
2007-2009 economic crisis and recession.
Moving sooner rather than later to begin tightening policy, Yellen
said, would allow the Fed to take a gradual approach to further
hikes, slow enough to ensure that housing and other key markets are
not disrupted by rising rates.
"Moving in a timely fashion - if the data and the outlook justify
such a move - is a prudent thing to do because we will be able to
move in a more gradual and measured pace," she said.
"It's been a long time that interest rates have been at zero, but
markets and the public should be thinking about the entire path of
policy rates over time. And the committee's expectation is that will
be a very gradual path."
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As the central bank approaches the critical decision, there has been
division at the highest levels over whether the time is right. Fed
governor Lael Brainard has expressed among the deepest concerns
about whether a weak global economy could damage the U.S. recovery,
but on Wednesday struck a slightly more upbeat note.
"The improvement in the labor market has been extremely steady,"
Brainard said at a conference in Germany. "There are certain aspects
of the U.S. outlook that are encouraging."
Both Brainard and Yellen emphasized that the Fed has not yet made a
decision, and that incoming economic data would have to meet the
central bank's expectations of how the economy is performing.
Another top Fed official, Vice Chairman Stanley Fischer, is
scheduled to speak at a forum in Washington later on Wednesday.
"At the moment what we see is a domestic economy that is pretty
strong and growing at a solid pace, offset by some weakening
spilling over to us from the global economy," Yellen said. "On
balance, as we said, we still see the risks to economic growth and
the labor market as balanced."
(Reporting by Howard Schneider and Jason Lange; Additional reporting
by Jonathan Spicer in New York; Editing by Andrea Ricci)
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