The rate hikes, which make borrowing more expensive, are used by the Fed to tamp down inflation. But many point out that, in the past, they also have stifled spending enough to flip the economy into recession.
Powell said he remains upbeat and has not made up his mind about further rate hikes this year.
“There is no preset path for policy,” he said. “We are always prepared to shift economic policy and to shift it significantly.”
The Fed is “listening carefully to the message that the market is sending,” he said.
Powell spoke Friday after release of the monthly government report that showed a gain of 312,000 jobs in December – about twice as many as had been expected. The report also showed wages rising. While the unemployment rate ticked up to 3.9 percent, that increase was caused by a surge of new workers, he said.
That report was evidence that the economy is chugging along steadily and can probably more easily handle more rate hikes.
But that robust picture contrasts with a report from the Institute for Supply Management that showed a drop in manufacturing and with high-profile corporate setbacks like those of Apple, which announced a shortfall in profits. In addition, there's concern that China's economy is stumbling, something that could hurt many U.S. companies.
Powell also recognized the “tension” between upbeat data like the jobs report and the skittish behavior of a pessimistic market.
Wall Street's fears of recession are wrong – or at least, premature, he said. "I think the markets are pricing in downside risk, and I think the markets are well ahead of the data."
That is, they are anticipating a downturn that might not come for a while.
The stock market since summer has roller-coastered, with a series of climbs and – more frequently – drops. An hour after Powell spoke, the Dow Jones Industrial Average was up about 500 points. The index ended the day at 23,433.16, up 746.94 points on the day.
Yellin endorsed Powell’s view of the economy, arguing that the fundamentals are solid.
The housing market has been relatively healthy, consumer debt is controlled, and low oil prices have provided many households more spending money, she said. "Consumer spending at Christmas was strong."
Bernanke said the expansion seems likely to continue through next summer, becoming the oldest in U.S. history.
“Expansions don’t die of old age, they get murdered instead,” Bernanke said. “Right now, I don’t see anyone lurking or hiding behind the curtain.”
While none of the panelists mentioned the president by name, Yellin and Bernanke described their experience in ways that could only be seen as contrast with Trump’s withering critique of Powell.
Yellin said previous presidents had refrained from public criticism of the Fed, a restraint that bolstered public trust of the Fed’s policies.
Bernanke, who served under both Presidents Bush and Obama, said, “Both of them were very respectful of the Fed’s policies in making changes in the short-term interest rates.”