But, he told the Senate Banking Committee, "There's no evidence that the economy's now overheating".
In his prepared remarks, Powell hinted that the central bank would stick to its current path of gradual rate hikes, but his comments during congressional testimony seemed to spook the market.
"I'll be honest, I would have thought you'd seen more wages increase by this point", Powell said during the hearing.
"Powell more confident on growth, putting 2018 dots in play", is how JP Morgan's Michael Feroli summed up the day, referring to the quarterly "dot plot" of projected interest rates that Fed policymakers submit. Eastern time. It was up as much as 0.6 percent and down as much as 0.5 percent in choppy trading earlier in the morning as traders parsed Powell's comments. Wall Street looked set for another weak open, futures signalled, after it ended February with its worst monthly performance in two years.
The beginning of his tenure has been defined by ramped up market volatility, a pickup in rates and the consensus that inflation is ticking higher after a prolonged period of price suppression. The Dow Jones industrial average dropped 1.7 percent to 24,608.98 and the Nasdaq composite fell 1.3 percent to 7,180.56. Hong Kong's Hang Seng shed 1.8 percent to 30,489.57 and the Shanghai Composite in mainland China fell 0.4 percent to 3,260.33.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.85 percent.
The economy grew at a 3 per cent annual pace over the second half of a year ago, and it is about to receive additional stimulus from tax cuts and higher federal spending approved by Congress in recent months.
Trump Wanted to Fire Ivanka and Jared Kushner From White House
Hicks is the closest adviser to the president and well-loved in the administration . Kelly's biggest job is to maintain order in the White House and stop the leaks.
Stocks fell sharply as investors anxious that President Donald Trump's planned tariffs on steel and aluminum will lead to retaliation from other countries.
Shares of Ford Motor dropped 3.0 percent and General Motors fell almost 4.0 percent.
SHARP BITE: Patterson Companies fell to the biggest loss in the S&P 500 after it reported weaker earnings for the latest quarter than analysts expected and said that its chief financial officer was leaving. The pan-European FTSEurofirst 300 index of leading regional shares lost 1.26 percent to close at 1,468.47.
Crude oil fell more than 1.0 percent, hitting two-week lows on pressure from a strong USA dollar and worries that surging US crude output might thwart efforts by the Organization of the Petroleum Exporting Countries to drain global supply. That divergence in rate outlooks also weighed on the euro, which hovered at a six-week low at around $1.2182.
Comcast fell 6.3 percent after the US cable giant offered to buy Sky for $31 billion in an unsolicited approach, taking on Rupert Murdoch's Fox and Bob Iger's Walt Disney in the battle for Europe's biggest pay-TV group. The Japanese yen firmed 0.37 percent versus the greenback at 106.28 per dollar. Brent crude, the worldwide standard, lost $1.04 to $63.70 per barrel.
Stocks tumbled on Wall Street while the USA dollar fell on Thursday after President Donald Trump said the United States would impose tariffs on steel and aluminum imports, sparking fears of a harmful global trade war.
Japan's benchmark Nikkei 225 lost 2.8 percent to 21,109.44 and South Korea's Kospi slid 1.5 percent to 2,391.81. The FTSE 100 in London dropped 1.1 percent.