The Dow rose to a record high and bond yields tumbled after Federal Reserve chair Janet Yellen's congressional testimony dampened growing expectations that more than one interest rate hike was in the cards this year.

Yellen's speech was a nod to Wall Street as the Fed signalled it will gradually tighten policy and gradually unwind its massive balance sheet. A neutral interest rate level refers to one that neither encourages nor discourages economic activity.

Investors cheered Yellen's dovish tone, alleviating some concerns over the recent dip in inflation.

"People were worried about her coming out more hawkish. She said exactly what the market expected and that's why the market was happy with it," said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners.

In remarks to the House Committee on Financial Services, Yellen said the US economy is strong enough to absorb further gradual rate increases along with the slow wind-down of the Fed's massive bond portfolio.

The testimony depicted an economy that is growing, albeit slowly, and continues to add jobs as it benefits from steady household consumption and a recent jump in business investment.

Importantly, she said the fed funds rate "would not have to rise all that much further" to reach a neutral level that neither encourages nor discourages economic activity.

Equities rose on the view the Fed's monetary policy is not going to be as aggressive as some had anticipated, said Larry Hatheway, chief economist at asset management firm GAM.

"The Fed isn't really going to upset the apple cart," Hatheway said. "There's some softening here of what the Fed is going to do at least around rates. It doesn't necessarily answer the question around its balance sheet."

On Wall Street, the Dow Jones Industrial Average rose 123.07 points, or 0.57 per cent, to 21,532.14, a new closing high. The S&P 500 gained 17.72 points, or 0.73 per cent, to 2,443.25 and the Nasdaq Composite added 67.87 points, or 1.1 per cent, to 6,261.17.

The dovish sentiment from the Fed at the same time put the S&P 500 financials, which tend to benefit from higher rates, last among sectors, ending with just a gain of 0.1 per cent.

Bond yields, which move in reverse of price, fell sharply. The benchmark 10-year US Treasury note yield fell to 2.302 per cent, its lowest in two weeks, before paring some gains to trade at 2.3195.