It would not want to wait too long to see overseas weakness affect the USA economy, he added.
He said an "extended" shutdown would show up in economic data "pretty quickly" and, since it shutters some agencies that provide economic data, it would also make the picture of the economy less clear for the Fed.
The balance sheet "will be substantially smaller than it is now", though bigger than it was before the crisis, Powell said.
The US Dollar continues to be weighed down by the growing market conviction that the US central bank might slow the pace, or perhaps even pause the rate hike cycle in 2019, reinforced by the Fed Chair Jerome Powell's comments on Thursday.
Since the meeting, Fed officials have indicated they're less inclined to keep raising than their statement and projections for hikes in 2019 had suggested.
Powell said last week that he's "listening sensitively to the message that markets are sending" about downside risks.
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.
"It's a tightly integrated economy and financial markets will see the effects of that", he said.More news: Mike Tomlin Denies Report Of Antonio Brown Trade Request
More news: China lands first spacecraft on far side of moon
More news: Rockets GM thinks James Harden averaging 40 points per game is possible
The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.
"I'm very anxious about it", the Fed chief told participants of The Economic Club of Washington, DC on Thursday.
The partisan fight has forced the partial government shutdown which stretched into the 20th day and, with no end in sight, is about to make it the longest in the USA history.
Powell also said he didn't think it would be appropriate to reject an invitation to meet with Trump, but he hasn't yet received such an invitation.
In a measure of how much the Fed's more dovish approach has soothed investor concerns about rising interest rates, a survey by The Wall Street Journal Thursday said that about 60% of economists expect the Fed to hold rates steady until at least June.
Even so, US central bankers face a challenging year that's complicating their communication.
Powell and others have been less demonstrative and noted that economic data remains strong, particularly after a recent payroll report that showed more than 300,000 jobs added in December.
Fed officials and many forecasters expect growth to slow in 2019, but to remain strong enough to continue generating jobs and keeping the unemployment rate near its nearly 50-year low.