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WASHINGTON—Federal Reserve Chairwoman Janet Yellen said the U.S. central bank may raise short-term interest rates at its mid-December meeting, but emphasized no decision has yet been made.

The Fed expects "the economy will continue to grow at a pace that's sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term, and if the incoming information supports that expectation, then our statement indicates that December would be a live possibility," Ms. Yellen said Wednesday while testifying before the House Financial Services Committee. "But importantly, we've made no decision about it."

The Fed has kept its benchmark short-term interest rate, the federal-funds rate, pinned near zero since December 2008. Ms. Yellen said in late September that she and most other policy makers "anticipate that it will likely be appropriate to raise the target range for the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective."

Ms. Yellen said Wednesday that "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 at a more gradual and measured pace. We fully expect that the economy will evolve in such a way that we can move at a very gradual pace, and of course, after we do so, we will be watching very carefully whether our expectations are realized."

Referring to recent remarks by Fed governor Lael Brainard on the subdued state of U.S. inflation, Ms. Yellen told lawmakers that "if we were to move, say in December, it would be based on an expectation -- which I believe is justified -- that with an improving labor market and transitory factors fading, that inflation will move up to 2%. But of course if we were to move, we would need to verify over time that expectation was being realized, and if not, adjust policy appropriately."

The Fed's policy-setting committee decided to hold rates near zero at a closely watched meeting in mid-September but signaled in its late October policy statement that a rate increase was possible "at its next meeting" on Dec. 15-16.

CME Group said Tuesday, ahead of Ms. Yellen's testimony, that fed-funds futures suggested a 52% probability of a rate increase in December.

Other top Fed officials may add to Ms. Yellen's comments later Wednesday. Federal Reserve Bank of New York President William Dudley is set to speak Wednesday afternoon at a press briefing in New York, and Fed Vice Chairman Stanley Fischer will deliver a speech Wednesday evening at the Canadian embassy in Washington.

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

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(END) Dow Jones Newswires

November 04, 2015 11:55 ET (16:55 GMT)

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