The US economy had “recovered substantially” from the post-crisis recession and was set for further growth and firmer inflation, Janet Yellen said, as she laid the groundwork for the first upward move in official interest rates since 2006.

A rate rise would testify to the progress the US has made in shrugging off the legacy of the crash, the Fed chair said, adding there were risks in waiting too long to start normalising policy.

Dangers from abroad had also diminished since September, when the Fed held fire on rates citing risks from China and financial markets.

An upward move widely expected on December 16 at the Fed’s next meeting would put the US on a sharply divergent course from many other advanced nations. In the euro area, the European Central Bank is expected to loosen policy today as it attempts to lift inflation and nurture the region’s recovery.

The ECB is likely to extend and expand its programme of quantitative easing, and could make a further cut to its deposit rate. However, German-led opposition within the bank could limit the extent of further action, potentially disappointing markets.

Alluding to the key test the Fed has set before tightening monetary policy, Ms Yellen said her confidence in the inflation outlook had been “bolstered” by recent strength in the jobs market, adding that there had been welcome signs of a pick-up in wage growth.

The Federal Open Market Committee gathers in two weeks’ time for a much anticipated rate-setting meeting, with financial markets now primed for a possible increase in official short-term interest rates from current near-zero levels. In its last statement, the central bank formally put the world on notice that a move was possible in December.

“The US economy has recovered substantially since the Great Recession,” said Ms Yellen in Washington yesterday.

Even if the Fed raises rates, Ms Yellen has been at pains to stress that increases will be incremental. In her speech she said the Fed would be cautious in tightening policy because the interest rate compatible with stable economic conditions remains historically low and may rise only gradually.

The Fed’s last set of projections suggested increases at a pace of about 100 basis points a year in 2016 and 2017, which would still be quicker than the speed forecast by financial markets.

Ms Yellen said the US economy was still not at full employment in her view — a verdict that contrasts with that of some of her more bullish colleagues.

But she warned that if the Fed waits too long to move it could end up getting behind the curve and then being forced to rise sharply. “Holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability,” she added.