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Thursday's brief drop stood in contrast to the response to Powell's remarks last Friday, when the Dow surged 747 points after Powell said the Fed is willing to be "patient" and "flexible" about future interest rate hikes - sentiments he reiterated Thursday.

With no sign of excessive inflation or outsized risk in financial markets, Powell said the Fed would be "waiting and watching" in coming months.

The Fed's favorite inflation gauge, the personal consumption expenditures price index, clocked in at a 1.8 percent year-over-year rate in November.

Powell said that he had never met Trump before he was interviewed by the president in late 2017 for the Fed chairman's job.

US Federal Reserve Board Chairman Jerome Powell participates in a luncheon discussion hosted by the Economic Club in Washington, US, Jan. 10, 2019.

USA central bankers are refining their message after the hawkish tone of their December 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.

Powell on Thursday also reiterated that, separate from what happens with interest rates, the Fed would continue allowing its almost US$4 trillion portfolio of bonds to shrink each month, to a level "substantially smaller" than it is now.

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"There is no such plan", Powell said.

The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider. Big picture: "they don't have that much further to go and they don't have to go there fast", said Robert Tipp, chief investment strategist with PGIM Fixed Income in Newark, New Jersey.

The central bank's quarterly forecast in December showed Fed officials still expect two more increases in 2019. "That was conditional on a very strong outlook for 2019, an outlook that may still happen".

Many business leaders remain optimistic about the United States economy this year, despite higher interest rates and large swings in the stock market.

While there is wide agreement that the U.S. economy will grow more slowly than the roughly 3 per cent rate of 2018, there's a lot of debate about how fast the slowdown will be. "The principal worry we have is global growth" in Asia, Europe and elsewhere.

He also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy.

While most previous shutdowns have been fairly short and have not affected the economy in the aggregate, Mr Powell said, "if we have an extended shutdown, I think that would show up in the data pretty clearly".