Powell's comments were similar to remarks he made last Friday in Atlanta where he said the Fed could afford to be "patient" in determining when to raise interest rates again given that inflation has remained muted.
He downplayed predictions from policymakers suggesting interest rates would be raised twice more this year.
Powell's second appearance in less than a week generated a subdued response in financial markets, a sign he may have found his footing in how to describe central bank policy without surprising investors.
In his remarks before the Economic Club of Washington, Powell described the economy as strong at the end of previous year, with the lowest unemployment levels in a half-century and solid gains in wages.
That prospect has cheered markets, which had grown anxious that the Fed was not taking into account a variety of headwinds that could slow USA growth this year. Those forecasts appear supported by a robust December labor-market report, which showed the economy added 312,000 non-farm jobs, the most in 10 months.
The monthly reductions, effectively running on autopilot, have been criticized by some as a steady tightening of financial conditions the Fed should reconsider.
"We would have a less clear picture into the economy if it were to go on much longer", Powell said. He said the Fed's aim was to return the balance sheet to a "more normal level" but didn't specify what that level will be.
USA central bankers are refining their message after the hawkish tone of their Dec 19 statement and forecasts for further rate hikes in 2019 roiled financial markets.
Still, Powell's comments and those of other officials "are developing a new narrative". "That was conditional on a very strong outlook for 2019, an outlook that may still happen".
At the same time, Powell said there are concerns in financial markets about slowing global growth and rising trade tensions. The unemployment rate stands at 3.9 per cent and central bankers expect it to average 3.5 per cent in the final three months of this year.
"There is no pre-set path for rates. particularly now", he said. "The principal worry we have is global growth" in Asia, Europe and elsewhere.
"We're in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we're waiting and watching", Powell said in a question-and-answer session Thursday at the Economic Club of Washington, D.C.
He also anxious about the lack of key economic statistics during the government shutdown that the Fed uses to take the temperature of the economy.