Speaking to an annual conference of central bankers in Jackson Hole, Wyoming, the Fed chairman said the central bank recognizes that the path of inflation is so uncertain that it generally needs to strike a balance between being supportive of growth and being restrictive.
Though he did not directly address the geopolitical turmoil, Powell did say that if strong growth in income and jobs continues, further gradual increases for the federal funds rate will "likely be appropriate".
Investors have fully priced in a rate increase next month and see an above-60 percent probability of another move by the Fed's meeting in December.
"The Fed´s gradually removing accommodation, meanwhile inflation remains relatively subdued, so that puts a clear pivot into the curve", said Blake Gwinn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.
"Any comments on current Fed policy will draw even more than the usual attention given recent and unprecedented criticism of the Fed by President Trump", Larry Hatheway, chief economist at GAM Investments, told Bloomberg News. The bank made a total of seven rate hikes since December 2015, three coming previous year. He said Fed mistakes of the past, such as a misestimation of full employment that allowed inflation to take off in the 1970s, mean the central bank today should not assume its current estimates of those economic variables are precise. Inflation is near our 2% objective, and most people who want a job are finding one ... Unemployment is low at 3.9 per cent, and inflation, according to the Fed's preferred benchmark, is slightly above officials' 2 per cent target. Hawkish members of the Fed board have expressed fears that moving too slowly could risk rampant inflation, but more liberal officials see no need slow down the economy while prices stay mostly stable. Mester is a voting member of the Fed's policy committee this year.
There had been concern that Jerome Powell would lay out an accelerated series of rate hikes despite recent wobbles in emerging market economies.
"The dollar's reaction is a part of a narrative that was established earlier this week, one that we saw in the minutes, with respect to the Fed making progress toward neutral", Issa said. But Powell has brushed off that criticism and said the White House would have no impact on monetary policy. Trump on Monday had directly attacked Powell, saying he was "not thrilled" with him for raising interest rates. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming USA sanctions against Iran.
The research centers on a key variable that is important for many policy makers in setting interest rates - the so-called natural level of unemployment, or the level needed to maintain stable inflation.
"Jerome Powell hit the dollar with a fairly dovish set of remarks at Jackson Hole", said Neil Wilson of Markets.com said in a note to clients.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Trump can decide what to comment on and is not anxious that the criticism will affect the central bank's monetary policy.