At midday: S&P 500, Nasdaq hit record highs on Powell comments

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In the speech to the annual gathering of central bankers and economists in Jackson Hole, Wyoming, Powell said there were few signs the United States economy was "overheating", which means the Fed can continue its course of gradual rate increases.

"The economy is strong", he said.

Powell's speech discussed at length the challenges of monetary policy at a time when economic benchmarks - such as estimates of full employment or the neutral policy rate - are uncertain.

"I see the current path of gradually raising interest rates as the FOMC's approach to taking seriously both of these risks", he said, referring to the Federal Open Market Committee (FOMC), the Fed's policy-making committee.

The Jackson Hole speech follows closely behind President Trump's criticism of the Fed for its continued tightening of U.S. monetary policy ever since Powell, who was nominated for the role by Trump, took the helm in February.

With the USA economy improving, Fed officials have signaled two more small increases are expected this year to try to prevent a jump in inflation that can come when borrowing costs are low in a growing economy.

He said Powell's speech indicated the Fed was flexible and didn't want to choke off growth by raising rates too fast.

"President Donald Trump's recent public criticism of Fed Chair Jerome Powell is a clever attempt to pre-emptively blame the Fed and its interest rate hikes for any future downturn in the USA economy".

"Treasuries have returned to the lower end of their recent (yield) ranges and I think that speaks to the heavy short positioning, suggesting that it's easier for the market to rally than it is to sell off", said Jonathan Cohn, an interest rate strategist at Credit Suisse in NY.

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Unemployment rate fell to 3.8 percent - a level that was last seen in April 2000 and in the year of 1969.

"We can afford to wait and see and inflation does start to move up, well, we can move up", he added. But Powell has brushed off that criticism and said the White House would have no impact on monetary policy.

The Fed's policy rate stands in a range of 1.75 percent to 2 percent. The central bank would "do whatever it takes" to maintain the strength of the U.S. economy, he said.

The Fed chief has addressed the issue of central bank independence various times, stressing the need for policy deliberations to be free of political considerations.

MR JEROME POWELL, Fed chairman, on the central bank's approach to rates. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming US sanctions against Iran.

Under chairs Ben Bernanke and Janet Yellen, the case for holding off on rate hikes was simple as the unemployment rate declined from a devastating peak of 10 percent in 2009 with an economy still scarred by the financial crisis.

Lew Alexander, an economist at Nomura, said earlier this week that, "Powell, a lawyer by training, is not known for breaking new conceptual ground on monetary policy or macroeconomics".

Powell's comments at the annual gathering of economic policymakers in Jackson Hole, Wyoming, will be viewed as a rebuke to the president.