The Dow Jones Industrial Average rose 64.25 points, or 0.31 percent, to 20,476.41, the S&P 500 gained 7.03 points, or 0.30 percent, to 2,335.28 and the Nasdaq Composite added 14.26 points, or 0.25 percent, to 5,778.22.
It was a touch-and-go kind of day, though, with stocks swinging between gains and losses for much of the morning session before finding upward momentum again this afternoon.
The Fed chairwoman painted a largely positive picture of the U.S. economy but warned that "changes in fiscal policy or other economic policies could potentially affect the economic outlook".
My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 percent.
BOND MARKET: Bond prices fell. The 10-year Treasury note advanced 5.1 basis points to 2.486%, compared with 2.434% late Monday in NY. The likelihood for a March move is at just 18 percent, according to the CME. The chances of at least three moves in 2017 sat at 33% on Monday.
On Feb. 3, Trump signed an executive order asking the Treasury Department to carry out a review of all existing financial regulations, to judge whether regulations are acting to support certain "core principles". In November, an independent review agreed in part and suggested ways that the Fed could be more transparent.
Yellen is due to give semi-annual testimony before the Senate Banking Committee on Tuesday at 10 a.m. EST.
The White House has said that Dodd-Frank failed to address the Too Big To Fail problem exposed by the 2008 meltdown.
What many overlook, State Street's Arone said, is that other forces will impel the Fed to steadily lift rates this year, in addition to whatever Mr. Trump and Congress do - namely the increasing possibility that large central banks around the world may want to push up rates as well.
"Yellen played a straight bat and broadly reiterated her previous messaging, forecasting ongoing progress toward the Fed's goals and gradual policy tightening", Bank of New Zealand currency strategist Jason Wong said in a note. At the moment, the federal funds rate is in a range of 0.5% to 0.75%.
There was some eye-catching data from China, where producer price inflation picked up more than expected in January to near six-year highs, while consumer price inflation neared a three-year high. USA commercial property prices have more than doubled from their post-crisis low in mid-2009, according to Green Street Advisors' Commercial Property Price Index, although 2016's increase of around 3 percent was the smallest yet in the recovery.
Fiat Chrysler rose 4.1 per cent and Faurecia rose 0.7 per cent.
Stocks have reached new records in recent days afterDonald Trump made vague promises of tax reform. The travel ban, which affected seven Muslim-majority nations, was deemed unconstitutional last week by judges in the 9th Circuit.
However, the dollar slipped on Tuesday after Trump's national security adviser Michael Flynn quit over allegations of having contact with Russian officials. Flynn had stirred controversy for lying to Vice President Mike Pence over conversations he had had with Russian Federation before Trump's inauguration.