Stocks declined slightly while Yellen was testifying.
Yellen`s testimony follows the Federal Reserve`s decision last week to hold steady on the federal funds rate at 0.25 percent to 0.5 percent.
Eventually, she said, continued job creation at the pace it has been running would cause the economy to overheat. If this happens, the Fed could be forced to raise rates faster than policymakers would like to, she added.
The Fed has been accused of letting politics affect monetary policy, but Yellen said she was not aware of any contact between Fed Governor Lael Brainard and Democratic presidential nominee Hillary Clinton.
Yellen was speaking as part of her semiannual testimony before the House Financial Services Committee about financial regulation. Investors have been watching Yellen`s comments closely for clues about any potential changes to the timing of the next rate hike. The Fed raised rates last December for the first time in nearly a decade but has held firm since then.
At her news conference following last weeks decision, Yellen said she "would expect to see (a rate increase this year) if we continue on the current course of labor market improvement, and there are no major risks that develop and we stay on the current course."
In the closely watched dot plot, Fed members forecast a median federal funds rate of 0.6 percent, indicating another hike would be in the cards before year end.
The CME Group`s FedWatch tool pegs the implied odds of a hike in November at 10.3 percent and the odds of an increase the following month at 57.4 percent.
Earlier in prepared remarks, Yellen said U.S. banks are well capitalized, but they remain challenged by weak interest income.
The U.S. banking sector has struggled in a low-interest rate environment that has been ongoing for more than a decade.
During the remarks, Yellen said the Federal Reserve is also considering stress tests requiring more capital from the country`s biggest banks. She noted that commercial and industrial lending show robust growth.
The eight largest banks have doubled their equity to $800 billion since 2008, she said. The biggest banks have also increased their holdings of high-quality assets by $1 trillion during the past five years.
Banks are less reliant on short-term funding and showing improved profitability since the financial crisis, which precipitated greater government regulation of the financial sector.
More recently, financial regulation has come under a closer microscope in the wake of a retail banking scandal that has rocked Wells Fargo and led to the forfeiture of millions in unvested equity by its CEO and a former executive.
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