The last hurdle to cross will be next Friday's jobs report.
John Briggs, head of strategy at NatWest Markets, said Yellen has changed the game for interest rates this year, and he now believes the Fed could raise rates four times, instead of the two he previously expected.
"Now you have to have a reason not to go in June and September," he said, adding he expects one hike a quarter.
He said the jobs report is what markets will be watching, and even if it's weak, the Fed could hike anyway. "If it's really bad, it's easy for them to dismiss — that it's so far out of whack, it can't be true," he said.
Treasury yields jumped initially when Yellen's comments were released at 1 p.m., with the 2-year Treasury yield reaching 1.345 percent, its highest level since 2009. The 2-year yield is the most sensitive to Fed rate hikes. It was last near 1.31 percent, and a trader said the yield's move lower was due to short covering, or investors scrambling to buy Treasurys in order to cover bets made against them.
The U.S. dollar index held slightly lower, and stocks traded slightly lower as well.
"The March rate hike is now locked in. Everybody's now shifting their focus to when the next hike (after that) comes in," said Chris Gaffney, president, EverBank World Markets. He said the risk is now that the Fed disappoints by not hiking — and if wages miss expectations in the upcoming jobs report.
Yellen, in comments to a Chicago business luncheon on Friday, said the Fed will raise rates this month if the economy holds up. She said rates are likely to rise faster this year for the first time since she took the helm of the Fed. Yellen follows a parade of Fed officials who have been talking up a rate hike for March, sooner than the June rate hike that many on Wall Street expected.
Economists expect next Friday's employment report to show an increase of 186,000 nonfarm payrolls. But the big thing they will be watching for is wage growth, which disappointed last month.
"It's the very last, low hurdle to cross. If it's even barely good, it will be good enough," said Aaron Kohli, rates strategist at BMO.
Strategists speculated the Fed was moving up its timetable for several reasons, beyond that the economy is doing better. One is that the Fed could potentially fall behind the curve, inflation could pick up, and it would be forced to hike quickly.
Yellen said she sees no evidence the Fed has fallen behind the curve, and a "gradual removal of accommodation is likely to be appropriate."
"She is defending the turf of the FOMC," said Peter Boockvar, chief market analyst at the Lindsey Group, in a note. "…Assuming they hike in March, gradual will likely be defined as three times per year. Not surprisingly I think they are so far behind the curve that none of them would make my son's little league team."