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Speaking to central bankers gathered at Jackson Hole, Wyoming, Powell also argued that the inflationary impact of Trump's tariffs could prove temporary.

But he did not, as some had expected, address the additional challenges he has faced in recent months: the political pressure exerted on the US central bank, Trump's barrage of name-calling and demands for Powell to be removed from his post.

The shift to a more "dovish" stance, suggesting an easing of the cost of borrowing, sent share prices higher.

Economists and investors were already expecting borrowing rates to come down from their current 4.25 to 4.5% range. Recent weakness in the US jobs market raised those expectations further, but the impact on prices of Trump's sweeping tariffs had raised doubts.

"In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation," Powell said.

Central banks typically cut rates to boost growth if there are signs of slowing economy and falling employment, as it makes it cheaper for consumers and businesses to borrow.

But boosting growth has to be balanced with keeping a check on rising prices. Higher interest rates can help control inflation, which is often seen as a central bank's main priority.

Powell said the effects of tariffs on consumer prices were now "clearly visible" but said that there was a "reasonable" case to be made that inflation would be "relatively short lived - a one-time shift in the price level".

He said it would take time for the price changes to work their way through, but he downplayed the likelihood of inflation becoming embedded due to increased wage demands, or higher inflation expectations.

As interest rates were already "in restrictive territory" - high enough to be having a dampening impact on economic activity - Powell suggested that "the shifting balance of risks may warrant adjusting our policy stance".