"Between today and the next FOMC meeting, we will receive additional data that bear on the economic outlook," Yellen told the Economic Club of Washington. "When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our policy decision."
Separately on Wednesday, San Francisco Fed President John Williams said he preferred hiking rates sooner rather than later. In prepared remarks, he noted that if the Fed waits too long, it risks overshooting its inflation target or creating imbalances in the economy.
Starting normalization sooner also allows for a more gradual process, he said.
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The next meeting of the Federal Open Market Committee is Dec. 15 and 16.
U.S. stocks were little changed on Yellen's comments, but currencies moved on the news. The euro at one point fell to a fresh 7½- month low against the dollar, and the yen slipped against the greenback. In fact, the dollar index hit highs of around 100.5 just after Yellen's prepared remarks were released, but it slipped below 100 throughout her speaking event.
The probability of a Fed rate hike in December held above 75 percent after Yellen's comments were released, according to CME's FedWatch tool.
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The Fed chair, who gives her economic outlook to Congress on Thursday, said she sees continued growth sufficient to boost jobs and raise inflation. The job market, she added, is close to the Fed's maximum goal, but she can't yet declare full employment.
Job growth has been relatively strong, and Friday's employment report is expected to show that the economy added about 200,000 jobs in November. Data on Wednesday from ADP showed U.S. private employers added 217,000 jobs in November, up from the 196,000 in October. Economists polled by Reuters had expected an addition of 190,000 jobs.
Yellen said there has been "less progress," on the Fed's goal to boost inflation to 2 percent, but she forecast that drags will diminish next year.
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Turning to the Fed's future rate decisions, Yellen said it will be appropriate to be more cautious on raising rates from near zero, and the Fed must take into account the lagging effects of its policy.
On the other hand, she said, if the Fed delays hikes too long, then it might have to tighten abruptly. The U.S. central bank, she explained, could inadvertently create a recession by waiting too long.
Even after the initial rate hike, the funds rate will be accommodative, Yellen said, adding that expectations for the path of the rate will be key to economic outlook.
During a question-answer session after the speech, Yellen said the Fed has no "predetermined" plan for rate moves after initial liftoff, and that policy will continue to depend on incoming data. "There is no plan to proceed over time in some mechanical or calendar-based way," she said.
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Future decisions will not require unanimity among FOMC members, and dissent will continue to be tolerated, but Yellen said decisions need some amount of agreement.
"The FOMC is an organization that does not suffer from group-think," she said. "But nevertheless, I think for the FOMC to be successful and to communicate a coherent policy to the public, we do need a certain degree of consensus."
"When the committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession," Yellen said at the conclusion of her speech. "In that sense, it is a day that I expect we all are looking forward to."
—Reuters and CNBC's Jacob Pramuk contributed to this report.