The Federal Reserve chairman declared US interest rates are closing in on "neutral" levels, triggering a stock market rally as investors interpreted the comments as a signal the central bank is preparing to slow down its rate-rising program.
While he defended the recent Fed's gradual rate hikes, Jay Powell said the central bank will be watching new economic data very closely as monetary policymakers decide what to do next.
Rates are hovering "just below" estimates of neutral – the Fed chair says that, in a possible sign that policymakers may decide they do not need to lift them much further.
"There is no preset policy path," Mr Powell said. "We will be paying very close attention to what incoming economic and financial data are telling us."
The comments at the Economic Club of New York on Wednesday came as he faced intensifying pressure from the White House to hold back from further rate rises. President Donald Trump this week told The Washington Post the Fed, which next month is expected to lift rates for the fourth time this year, "is way off base with what they're doing."
Mr Trump added: "So far, I'm not even a little bit happy with my selection of Jay."
The markets reacted sharply to Mr. Powell's comments, which he compared with an assessment he gave last month. In early October, he said rates were a "long way" from neutral levels, triggering a sell-off as investors fretted the Fed was preparing for a long succession of rate increases.
The S & P 500 was up 1.6 percent in the afternoon New York trading, jumping a full percentage point after Mr Powell's speech. The Dow Jones Industrial Average extended its gains to trade 1.9 percent higher and the Nasdaq Composite was up 1.9 percent.
Government bonds rallied as yields turned lower. The yield on the benchmark 10-year US Treasury was down 0.7 basis points at 3.0498 percent, having been up by 1.1bp before Mr Powell spoke. The yield on the more policy-sensitive two-year note was down 2.4bp at 2.8066 percent.
In his speech, Mr. Powell did not directly refer to Mr. Trump's criticisms. But he insisted the Fed had been right to embark on gradual rate rises after judging the economy was no longer being well-served by the extraordinary low rates that prevailed after the 2008 financial crisis.
"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy – that is, neither accelerating nor slowing down the growth," Mr Powell said. "My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent."
The Fed's gradual pace of rate rises was an exercise in balancing two risks, Mr Powell added.
"Moving too fast would risk shortening the expansion," he said. "We also know that moving too slowly – keeping interest rates too low for too long – could risk other distortions in the form of higher inflation or destabilizing financial imbalances."
The speech came after the release of the Fed's new Financial Stability Report. He said overall debt in the financial system was not "abnormal or excessive." Even though some asset valuations were high, the Fed did not see "dangerous excesses" in the stock market.
The Fed chairman also offered a sanguine view of financial market risks, saying that while policymakers were keeping an eye on areas including rising corporate inequality, the overall system was resilient. The Fed's latest financial health checks suggested that "all things considered you are in good health," Mr Powell said.
The principle area for worry was corporate lending, where firms with high debts and interest burdens have been boosting their borrowing the most, and measures of underwriting quality have been deteriorating.