(Updates market action, adds Yellen remarks)
NEW YORK, Jan 18 (Reuters) - Short-term U.S. interest rates futures fell to session lows on Wednesday as Federal Reserve Chair Janet Yellen's remarks supported the view the central bank will increase borrowing costs gradually if the economy shows further improvement.
Federal funds futures were down as much 5.5 basis points on the day in late trading.
With the U.S. economy near full employment and inflation approaching the Fed's 2 percent goal, it "makes sense" for the central bank to slowly lift interest rates, Yellen said in remarks prepared for delivery to the Commonwealth Club of California in San Francisco.
Fed funds futures implied traders saw the likelihood of the Fed's next rate hike in June, following by another one in late 2017, according to CME Group's FedWatch program.
In December, the Fed raised its target range of short-term interest rates by a quarter point to 0.50-0.75 percent.
Rates futures showed traders priced in about a 71 percent chance the Fed would raise its target on short-term rates to at least 0.75-1.00 percent at its June 13-14 policy meeting, while they implied traders saw a roughly 72 percent chance of a hike of the target range to at least 1.00-1.25 percent at its Dec. 12-13 meeting, based on CME's FedWatch.
Yellen said as of December, she expected the Fed to increase rates a few times a year through 2019. (Reporting by Richard Leong; Editing by Chris Reese and Meredith Mazzilli)