The next FOMC meeting takes place in March followed by six more within the year.

Yellen emphasized that a modification of the FOMC's forward guidance should not be interpreted as a forthcoming increase to the target range.

“Instead the modification should be understood as reflecting the committee's judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting,” Yellen said.

Assuming labor market conditions continue to improve, Yellen told the committee the FOMC would consider an increase to the federal funds rate when the committee is reasonably confident inflation will move back over the medium term toward our 2% objective. Yellen said the decision would be based on incoming data.

During the hearing, some senators asked Yellen if she would support an audit of the Fed.

“Audit the Fed is a bill that would politicize monetary policy, would bring short term political pressures to bear on the Fed in terms of openness about our financial accounts. We are extensively audited. I brought with me this volume, which contains an independent outside auditor's – Deloitte Touche audits – of our financial statements,” she said.

To back up her position, Yellen cited the early 1970s when inflation became a problem in the U.S. economy. She said there was evidence that political pressures interfered with the Fed's decision-making.

Yellen argued that monetary policy must remain exempt from Government Accountability Office audits and that the Fed works best as an independent central bank.

“I really wonder whether or not the Volcker Fed would have had the courage to take the hard decisions that were necessary to bring down inflation and get that finally under control – something that I think has been very important to the performance of the U.S. economy. I wonder if that would have happened with GAO reviews in real time of monetary policy decision-making,” she said.