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In a much-anticipated speech Friday at the central bank's annual Jackson Hole summit, Fed Chair Janet Yellen voiced optimism about the economy and an expectation that interest rate hikes are ahead.

Speaking as the market wonders when the Fed will resume a policy tightening that began in December, Yellen issued some cautionary tones, but pointed to more increases on the horizon.

The Federal Open Market Committee "continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives," Yellen said in prepared remarks.

More pointedly, she added, "Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."

James Bullard, another voting member of the FOMC, told CNBC earlier Friday that the Sept. 20-21 Fed meeting might be a good time to raise rates. And Loretta Mester, who is also a voting member, told CNBC before Yellen spoke that she expects to some signs of strengthening in the US economy in the second half of 2016.

Government bond yields quickly moved higher after Yellen's remarks were released and stocks gave back some gains.

The Fed in December approved a quarter-point hike, its first move in more than nine years after anchoring its rate target near zero during the financial crisis and Great Recession. However, at that meeting FOMC members indicated that four more hikes were on the way in 2016.

A wobbly economy, low inflation and turmoil abroad had kept the Fed from continuing rate normalization. Going into the Yellen speech, the market was anticipating a coin-flip chance of any increase at all this year.

But Yellen said the jobs market is nearing full employment and inflation is ticking toward the Fed's 2 percent goal, despite downward pressure from "the transitory effects of earlier declines in energy and import prices."

On the downside, Yellen continues to worry about low business investment and declining productivity.

The speech otherwise was an academic exercise exploring whether the Fed has the tools to respond to another financial crisis. Critics worry that the low funds rate — currently targeted between 0.25 and 0.5 percent — will prevent the Fed from having latitude should a crisis on the scale of the 2008 one materialize.

Yellen defended the Fed's position, though she did acknowledge some limitations.

"In addition to taking the federal funds rate back down to nearly zero, the FOMC could resume asset purchases and announce its intention to keep the federal funds rate at this level until conditions had improved markedly — although with long-term interest rates already quite low, the net stimulus that would result might be somewhat reduced," she said.

First Published:Aug 26, 2016 8:14 PM IST