Powell's comments before the Senate Banking Committee strengthened the message he had sent to a House panel on Wednesday that the central bank is prepared to cut interest rates to support economic growth.
Powell noted that economic worries, reflected in surveys of business confidence, rose sharply in May. He did not specify what had caused the shock. But in early May trade talks between the United States and China broke down, and President Donald Trump announced that he was doubling tariffs on $250 billion in Chinese goods.
At the same time, the global economy showed further weakness. Powell said these added threats were addressed by the Fed at its June meeting. Since then, job creation, which had slowed sharply in May, has rebounded and fears of a widening US-China trade war have eased.
"The economy is in a very good place," Powell told the Senate committee. "We want to use our tools to keep it there. It is very important that this expansion continue as long as possible."
While Powell did not specifically state that a Fed rate cut could be coming at the July meeting, investors have taken his two days of testimony as strong evidence that is what will occur.
In his Senate appearance, Powell elaborated on the Fed's concerns about persistently low inflation as a reason that there is growing support for rate cuts, citing the problems Japan and Europe are facing in fighting chronically low inflation.
The Fed seeks to keep prices rising at an annual rate of 2%, but it has lagged below that level for most of the current expansion. This year it has fallen farther below that goal.
"You don't want to get behind the curve and let inflation drop well below 2% because what happens is you get into this unhealthy dynamic potentially where lower expected inflation gets baked into interest rates," Powell said.
The Fed raised rates four times in 2018, drawing the ire of Trump, who has called the central bank clueless by pursuing needless rate hikes that have slowed economic growth and depressed stock gains.
Much of Trump's criticism has focused on Powell. The president has said he has the power to fire Powell or demote him, something that legal experts dispute.
Asked about Trump's threats on Wednesday, Powell repeated that he intends to serve his full four-year term.
Powell received support from lawmakers in the House and the Senate for his efforts to maintain the Fed's independence from political pressure.
Sen. Richard Shelby, R-Ala., told Powell on Thursday, "Thank you for keeping the Federal Reserve independent of both parties. We salute you for that."
At a separate White House event Thursday, Trump kept up his criticism of the Fed, saying in reference to Powell, "We have somebody who likes raising rates. Now, I think he's maybe going to change but we'll find out."
The stock market set new records on Thursday, bolstered by Powell's signals on rate cuts, with the S&P 500 index hitting an all-time high and the Dow Jones Industrial Average closing above 27,000 for the first time. Trump said, "I'm a very greedy person. We just set a record, 27,000. I said we could be 10,000 points higher" with better policies from the Fed.
In response to questions at the Senate hearing, Powell said that very low unemployment rates no longer necessarily push up inflation. A relationship between the two existed "50 years ago" but that has gotten "weaker and weaker and weaker," Powell said.
Those comments were viewed as another signal that the Fed is feeling more comfortable about keeping short-term interest rates low even though unemployment has fallen to the lowest level in nearly 50 years.
For decades, economic theory suggested that low unemployment - such as the current jobless rate of 3.7% - meant that employers would have to raise pay to attract and keep workers, and that would then raise prices to cover higher wage costs.
Many Fed officials believed that required raising rates to slow the economy and prevent a "wage-price spiral" from sending inflation higher.
But Powell said Thursday he believes the unemployment rate can likely fall much further than in the past without sparking inflation, which means that interest rates can also stay lower.
"I think we're learning all of those things," he said.
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