"While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating", Powell said.
Elsewhere on currency markets the USA dollar were holding gains ahead of the annual Jackson Hole symposium of central bankers, where Fed boss Jerome Powell is due to speak later Friday. As the Fed comes closer to ending its rate hikes, and the other central banks start to raise rates especially the European Central Bank, the dollar will eventually weaken.
The benchmark S&P 500 stock index notched its longest bull market, closing above its previous January high, after Powell's comments at a meeting of central bankers reaffirmed expectations of an interest rate hike in September and perhaps again in December.
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Powell's speech will also be watched for any response he might offer to criticism by U.S. President Donald Trump, who told Reuters on Monday that he is "not thrilled" with rate increases during Powell's term as Chairman. "This is good news, and we believe that this good news results in part from the ongoing normalization process, which has moved the stance of policy".
Federal Reserve Chairman Jerome Powell is signaling that he expects the Fed to continue gradually raising interest rates if the USA economic expansion remains strong.
Though they made no public comments Thursday, Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren, once seen as steadfast doves, in recent months have lent their support to rate hikes, conventionally seen as a hawkish action. That echoed a phrase that was used to describe the extraordinary steps the Fed and other central banks took after the 2008 financial crisis plunged the US and global economies into deep recessions.
That is the difference between short-term interest rates and long-term rates.
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At the same time, Powell said that in case of another financial crisis or intensified concern about high inflation, "We will do whatever it takes".
Normally, short-term rates are lower than long-term rates.
"We have a mandate by law, and we do the best we can to hit the mandate" of maximizing employment and stabilizing prices, James Bullard, president of the Fed's St. Louis regional bank, said Friday in an interview on CNBC.
"If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate", he said.
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In June, the Fed predicted a total of four hikes this year, up from an earlier estimate of three.