By Kate Davidson and Ben Leubsdorf 

Federal Reserve Chairwoman Janet Yellen on Friday signaled the central bank will likely raise interest rates within months if the U.S. economy keeps gaining strength.

"It's appropriate...for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate," she said during a panel discussion at the Radcliffe Institute for Advanced Study at Harvard University.

This leaves the door open for a move as soon as the Fed's next policy meeting June 14-15 or at its gatherings in July or September if officials prefer to wait for more economic data.

One reason for action: After a couple of weak quarters, "growth looks to be picking up from the various data that we monitor," Ms. Yellen said.

Gauges of consumer confidence and spending, housing-market activity and industrial production all gained steam during the spring months. Forecasting firm Macroeconomic Advisers on Friday projected growth in gross domestic product, a broad measure of the goods and services produced across the economy, would accelerate to a 2.5% annual rate in the second quarter from the first quarter's 0.8% pace.

In another positive sign, U.S. corporate profits show signs of stabilizing, though American companies still face earnings pressure due to rising wage growth and a still-weak global economic expansion. A key measure of corporate profits -- after taxes, without inventory valuation and capital-consumption adjustments -- rose at a 1.9% pace in the first three months of 2016 after declining the prior two quarters, the Commerce Department said Friday.

Still, on an annual basis, profits in the first quarter were down 3.6% for the second straight quarter, and profits as a share of the overall economy remain depressed from the record levels reached earlier in the expansion.

The resilience of corporate profits in the months ahead will be key to supporting the stock market, which has returned near the all-time highs reached in the spring of 2015, and critical to firms' ability to hire workers and invest in new equipment and facilities.

Ms. Yellen's comments on a possible rate increase echoed those of other Fed officials who have said in recent days they see two or three rate increases this year and could see moving in June or July.

Her remarks gave an additional boost to expectations that the Fed is getting closer to acting. Investors on Friday afternoon saw roughly a 61% chance that the Fed would raise rates either in June or July, up from 56% a day earlier, according to fed-fund futures tracked by CME Group.

The central bank in December raised its benchmark federal-funds rate, which had been near zero for seven years, to a range between 0.25% and 0.5%. Since then, policy makers have held rates steady through a U.S. economic slowdown, financial-market volatility and worries about global growth.

Two forces that have weighed on business earnings and the broader economy seem to be fading: the energy slump and the strong dollar.

Crude prices touched $50 a barrel this past week for the first time since last year, propelled by the most powerful rally in seven years. Higher prices are set to ease pressure on energy firms that have shed workers and pulled back on drilling.

The dollar, meanwhile, has been more or less stable over the past year after rising sharply against other major currencies in late 2014 and early 2015 as the Fed prepared to begin raising rates. A stronger dollar has made U.S.-made products more expensive for foreign customers, reducing demand for exports and squeezing the domestic manufacturing sector.

The worst may be over from the oil downturn and effects of a strong dollar. But a tightening labor market is pushing up wages "and that probably is cutting into margins" more broadly, said Jesse Edgerton, a J.P. Morgan Chase economist.

Ms. Yellen emphasized the Fed is likely to raise interest rates "gradually and cautiously" because raising them too quickly could trigger a downturn to which the Fed may have limited tools to respond.

One possible impediment to a June rate increase is the U.K.'s June 23 referendum on whether to leave the European Union. Several Fed officials have flagged the so-called Brexit vote -- which falls one week after the Fed's June meeting -- as a possible source of uncertainty that could cause them to hold off on another rate rise until later this summer.

Ms. Yellen wasn't asked about the risks from a Brexit vote during her appearance Friday. She is set to speak again on June 6 in Philadelphia.

Still, the growth picture has brightened from early this year, when the U.S. economy followed its familiar postrecession pattern of a first-quarter stumble. GDP expanded at a 0.8% seasonally adjusted annual rate in the first three months of 2016, the Commerce Department said in updated figures out Friday. That was up from an initial estimate of 0.5% growth but still represented a deceleration from the fourth quarter's 1.4% growth rate.

Household outlays, the housing sector and spending by state and local governments all provided positive contributions to output growth in the first quarter. Business investment, inventories and foreign trade were all drags on growth.

Business spending remains a sore spot. The Commerce Department this past week reported that April saw a decline in a key proxy for capital expenditures, orders for long-lasting civilian capital goods excluding aircraft. That came after the first quarter saw the steepest decline in fixed nonresidential investment -- a metric of U.S. business spending -- since the tail end of the 2007-09 recession, including sharply lower spending on structures and equipment.

Chico's FAS Inc. said this past week that same-store sales fell 4.2% from a year earlier in the three months ended April 30. The Fort Myers, Fla.-based women's apparel retailer said it plans to scale back capital expenditures for this year and close dozens of stores. "In this challenging environment, we are allocating our resources prudently," Chief Financial Officer Todd Vogensen told analysts Thursday.

Consumers seem in better shape. The unemployment rate in April was 5%, half the level seen in the recession's immediate aftermath, and long-sluggish wage growth has firmed by some measures. Consumer spending expanded at a 1.9% annual rate in the first quarter, and retail sales jumped in April at the fastest pace in a year. The University of Michigan on Friday reported its index of consumer sentiment rose to 94.7 in May, the highest level in 11 months.

Write to Kate Davidson at kate.davidson@wsj.com and Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires

May 27, 2016 18:46 ET (22:46 GMT)