Members of the Fed's policy-setting committee have estimated the neutral rate as anywhere between 2.5 per cent and 3.5 per cent - which means that the federal funds rate is, indeed, only another couple of quarter-point hikes away from entering that range. Unemployment is at a 48-year low, and inflation is right at the Fed's 2 percent target. The markets interpreted this as a signal that the Fed is near the finish line in its rate hikes; the USA dollar and bond yields declined accordingly.
While Powell said Fed officials are monitoring these risks, they are not on the whole too anxious about them.
Mr. Trump's main beef with the central bank is that its ongoing policy of hiking interest rates is curbing growth just as Americans are reaping the benefits a buoyant economy.
USA central bankers are trying to keep the world's largest economy on an even keel and inflation near their 2 per cent target amid a strong labour market that has driven unemployment to the lowest level since 1969.
Recent remarks by Powell and other officials have made investors more hopeful that the Fed might raise interest rates at a slower pace next year. "It's so tight. I think the Fed has gone insane", Trump told reporters in Erie, Pennsylvania, where he had come for a campaign rally earlier this month. In an interview Tuesday with the Washington Post, the president complained bluntly and at length about Powell, who was Trump's hand-picked choice to lead the Fed. Until last summer, though, he had withheld criticism of the Powell Fed's rate hikes.
In his NY speech Wednesday, Powell did not dispute the widely held belief that the Fed will raise interest rates again in December, saying "there is no preset policy" about tightening.
Nearly all Federal Reserve officials at their last meeting agreed another interest rate increase was "likely to be warranted fairly soon", but also opened debate on when to pause further hikes and how to relay those plans to the public. This softer language indicates the Fed will likely raise rates in December.
Despite Trump's tough remarks on the trade dispute ahead of Saturday's meeting with Chinese President Xi Jinping, markets focused on comments by White House economic adviser Larry Kudlow, who indicated the two countries could call a truce.
But in discussing his choice of Powell past year, Trump said Tuesday: "Look, I took recommendations".
That was a marked change from his observation on October 3 that the Fed was "a long way" from neutral.
The central bank's rate increases have gradually raised borrowing costs for consumers and businesses.
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.
Powell's speech addressed the central bank's first ever financial stability report, which was released Wednesday morning.
"My own assessment is that, while risks are above normal in some areas and below normal in others, overall financial stability vulnerabilities are at a moderate level", Powell said.