In his semi-annual testimony before Congress, Powell said that trade policy and a weak global economy "continue to weigh on the US economic outlook". In addition, inflation has dipped further below the Fed's annual target level.
Mr Powell, giving evidence to a hearing in Washington, has come under pressure from Donald Trump to cut rates.
The first USA interest rate cut in ten years is likely to happen this month.
Trump, who is relying on a strong economy to help propel him to a second term in office next year, has called the Fed his biggest threat.
At the same time, in the view of Fed officials, Trump's policies - including higher tariffs and an unpredictable governing style - have increased economic risks and led them to consider the same rate reductions Trump has demanded.
Powell, chosen by Trump to run the Fed but now out of his good graces, has worked hard to build relations among lawmakers, and even on a Democratic-controlled committee won plaudits and encouragement to stay on the job.
At the moment, the USA economic landscape is a mixed one: The job market appears resilient, but economic growth is slowing.
Powell's statement emphasizing that current trade conditions and muted economic activity are dampening the USA economy's outlook had a sanguine effect on the market.
Mr Powell pledged to "act as appropriate" to defend an economic expansion threatened by trade disputes and a global slowdown.
The Fed has kept its current benchmark overnight interest rate in a range of between 2.25 percent and 2.50 percent since December. Oxford Economics analyst Kathy Bostjanic said she expects a quarter-point cut at the July meeting, and another in September.
That change reflects two developments.
And last week the government reported that after a tepid job gain in May, U.S. employers sharply stepped up their hiring in June, an indication of the economy's durability.
The comments come amidst heightened tensions between Powell and the president, who's repeatedly lashed out at the USA central bank for raising interest rates too frequently in 2018 - while also urging policymakers to cut rates at the upcoming July meeting. Trump wrote on Twitter earlier this month, the latest in a series of unprecedented attacks on the independence of the Fed by a sitting president.
"It seems like they (Fed) are getting closer to a decision point where they are more willing to openly communicate the possibility or the likelihood of a rate cut and the market is just taking that in", said Jason Pride, chief investment officer of private wealth at Glenmede in Philadelphia.