Powell's comments ignited a huge rally on Wall Street, with the Dow Jones Industrial Average surging 617 points, its biggest one-day increase in eight months. Referring to the Fed's gradual increases in its benchmark rate, Powell said, "there is no preset policy path." Rather, he said, the Fed will assess the most recent economic and financial data in deciding whether or how fast to keep raising rates.
Speaking to the Economic Club of New York, the chairman also suggested that interest rates appear to be just below the level the Fed calls "neutral," where they are thought to neither stimulate growth nor impede it. That contrasted with a remark Powell made in October that the Fed's policy rate was still a "long way from neutral." His remark then had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.
The Fed chairman also said Wednesday that while some corporate debt loads have reached riskier levels, "we do not see dangerous excesses in the stock market." The Fed has raised its benchmark short-term rate, now in a range of 2 percent to 2.25 percent, three times this year and is expected to do so again next month. But the likely pace of rate increases next year remains a subject of speculation.
The rate increases have gradually raised borrowing costs for consumers and businesses. Any slowdown or pause in the Fed's rate hikes would be welcome news for a stock market that's been battered by fears that the Fed's continued credit tightening could end the long bull market. Higher rates tend to slow economic growth over time as well as pressure stock prices
In recent weeks, President Donald Trump has repeatedly attacked the Fed — and Powell personally — for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil. Critics have expressed worry that the president's attacks threaten the Fed's ability to operate free of political pressure.
Trump's blunt public criticism of the Fed is without precedent. His predecessors took care not to directly attack the central bank's rate policy out of concern that such criticism could backfire. Investors might, for example, question whether the Fed would feel free to keep raising rates, if it felt it necessary to control inflation.
Some have speculated that Trump might try to oust Powell, who was his hand-picked choice to lead the Fed. But most analysts see that as farfetched. The law creating the Fed says such officials can be "removed for cause." The courts ruled decades ago that "for cause" meant more than a policy disagreement with the president.
In his speech Wednesday, Powell made no mention of Trump's criticism, and he wasn't asked about it during a question period with economists afterward. The chairman added that the Fed regards no major asset class as significantly inflated, "as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom."
While noting that some forms of corporate debt levels have become concerning, Powell the financial system and markets appear far sturdier than they did before the 2008 crisis. The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.
As he did at an appearance earlier this month, Powell cited strong annual economic growth above 3 percent and unemployment at a near five-decade low of 3.7 percent. Those trends, he said, were coinciding with inflation remaining "right on target" at the Fed's goal of 2 percent annual price increases.
"There is a great deal to like about this outlook," Powell said Wednesday. In the past, Powell has mentioned a number of looming risks to the economy, including the slowdown in global growth and the fading benefits of the tax cuts and government spending boost that took effect this year as well as the cumulative effect of the Fed's own rate hikes.
Many economists also worry about potential economic damage caused by Trump's trade conflicts with China and other nations. In the question period after his speech Wednesday, Powell sidestepped an inquiry about whether the next recession would likely caused by instability in the financial sector, such as a sharp drop in stock prices triggered by rising rates.
"I don't think instability is elevated," Powell said. He noted that unexpected events can trigger recessions, but "I don't know what it will be" that might halt the current expansion. In its most recent projections, the Fed forecast that it would raise rates in December for the fourth time this year, followed by three more hikes in 2019.
Analysts think a rate hike next month is all but certain, in part because they think the Fed doesn't want to appear to be bowing to pressure from Trump. But some economists say three rate increases for next year are beginning to look less certain. Some analysts are now saying the Fed may decide to raise rates only once or twice in 2019.