"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 speeding up nor slowing down growth", Powell said while speaking at the Economic Club of NY.
Stocks and interest-rate futures jumped, even while economists wrestled to interpret whether Powell meant to send a message or was simply misunderstood.
The current Federal Fund rate is 2.25 per cent, and there is a 77 per cent probability of a 25-basis point increase in the December meeting scheduled in the week before Christmas.
The central bank expects the unemployment rate to remain historically low next year.
The possibly dovish shift in language on Wednesday came as President Donald Trump stepped up attacks on Powell, criticizing the Fed's rate hikes as undercutting his economic and trade policies.
On Wednesday, Mr. Powell pointed to the range of neutral-rate projections submitted by 15 Fed officials at their policy meeting in September, varying from 2.5% to 3.5%.
United States central bankers believe another interest rate hike is due "fairly soon", boosting widespread expectations the Federal Reserve will raise lending costs next month, according to meeting minutes released Thursday.
The US central bank has been on a hiking path, raising the US benchmark rate about once every three months.
Powell in his remarks Wednesday also raised the importance of policymakers staying flexible in charting a path of policy given that the effects of rate hikes show up with a lag - a point that was reinforced in the Fed's November minutes.
And Powell's words stood in stark contrast to his remarks of a month earlier, when he said rates were still "a long way" from neutral, perhaps suggesting the Fed actually had a lot more tightening to do. Powell, who took over as Fed chairman in February, has said he wants to provide the public with "plain English" descriptions of what the central bank is up to.
"Powell is not suggesting that since they are just below the range they may stop soon".
"If there has been one certainty of late it is the market's ability to misinterpret Fed Chairman Powell".
"Participants also commented on how the Committee's communications in its post-meeting statement might need to be revised at coming meetings, particularly the language referring to the Committee's expectations for "further gradual increases" in the target range for the federal funds rate", the minutes said. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off-base with what they're doing".
The Fed has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating.
The dollar, which has outperformed bonds and the S&P 500 this year, benefiting from rising interest rates and safe-haven flows triggered by global trade tensions, fell back after Powell spoke.
"Over the past year, firms with high leverage and interest burdens have been increasing their debt loads the most", Mr. Powell said.
With last year's deep tax cuts and fiscal stimulus from Congress, the world's largest economy continues to hum: producing steady job growth and driving the unemployment rate to its lowest level since 1969 even as inflation remains right at the Fed's two percent target.
The continued strength of the American economy has made it more likely that the Fed will stick to its plans to raise rates in December, as part of its strategy to keep growth on an even keel into 2019.