Federal Reserve Chair Janet Yellen indicates that the U.S. economy is on track for an interest rate hike this month, but the Fed will need to review incoming data before making a final decision.

Yellen says the economy's progress since its last meeting in October is in line with the Fed's expectations that the labor market and inflation will keep improving.

But she adds that policymakers need to be more cautious in deciding when to start raising rates, given that it doesn't have much room to cut them if the economy begins to falter.

Yellen's comments came in a speech to the Economic Club of Washington. Markets were watching carefully for any details on what would be the Fed's first rate increase in nine years.