Wall Street shares have risen sharply after the US central bank indicated there may not be as many future interest rate rises.
In a speech, Federal Reserve Chair Jerome Powell said interest rates are “just below” a neutral level that neither hastens nor slows growth.
Last month, he had said the bank had a “long way” to go before reaching that level.
His remarks come after repeated attacks by President Donald Trump.
Mr Trump blames the Fed’s recent rate rises for recent stock market declines and has described future rate increases as the biggest risk to the US economy.
The president, who selected Mr Powell to lead the bank last year, has also said he is not happy with his pick.
Mr Powell, who was speaking at the Economic Club in New York, did not address the criticism directly.
But he appeared to soften his tone about future rate rises while continuing to defend the Fed’s plans for gradual increases.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy – that is, neither speeding up nor slowing down growth,” he said.
He added: “There is no preset policy path. We will be paying very close attention to what incoming economic and financial data are telling us.”
The US economy has enjoyed a healthy expansion this year, spurred in part by increased government spending and a major tax cut.
Job creation has been strong and gross domestic product (GDP) grew at an annualised rate of 3.5% in the most recent quarter.
However, many economists expect that pace to slow next year as the effects of the stimulus fade.
In his speech, Mr Powell said he viewed gradual increases as the best way to balance the risks of causing problems by raising rates too fast or too slowly.
“Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously,” he said.
Mr Powell said the overall risks to financial stability remain “moderate”, but he flagged rising levels of corporate debt as one area of concern.
He also said disruption caused by events such as Brexit might trigger economic distress.