Under questioning over why the central bank remains committed to normalizing policy even as price and wage pressures remain muted, Yellen said the Fed is aware of the softness in data and will react if necessary.
"It's something that we're watching very closely considering risks around the inflation outlook," Yellen said in her semiannual remarks on Capitol Hill. "To my mind, a prudent course is to make some adjustments [in rates] as long as our forecast is that we're heading back to 2 percent."
Officials have indicated that they plan to keep hiking rates on a slow, steady course until the target funds rate gets back to a more normal level after years of staying at historic lows.
But questions have arisen lately that the central bank may be raising at the wrong time as economic growth remains soft and inflation holds around 1.4 percent.
Earlier in the question-and-answer session, Yellen said the Fed is not considering reevaluating its 2 percent target. However, she said that doesn't mean the Fed won't pause on rate hikes.