Speaking at an annual gathering in Jackson Hole, Wyoming, Powell said the "time has come" for the Fed to adjust its interest rate policy. The announcement comes after a years-long effort to fight inflation with highly elevated interest rates.
Powell did not say when rate cuts would begin or how large they might be, but the Fed is widely expected to announce a modest quarter-point cut in its benchmark rate when it meets in mid-September.
His reference to multiple rate cuts was the only hint that a series of reductions is likely, as economists have forecast. Powell emphasized that inflation, after the worst price spike in four decades inflicted pain on millions of households, appears largely under control:
"My confidence has grown," he said, "that inflation is on a sustainable path back to 2%."
According to the Fed's preferred measure, inflation fell to 2.5% last month, far below its peak of 7.1% two years ago and only slightly above the central bank's 2% target level.
The Fed chair also said that rate cuts should maintain the economy's growth and sustain hiring, which slowed last month. Continued growth could boost Vice President Kamala Harris' presidential campaign, even as most Americans say they are dissatisfied with the Biden-Harris administration's economic record, largely because average prices remain far above where they were before the pandemic.
"We will do everything we can," Powell said, "to support a strong labor market as we make further progress toward price stability."
By cutting rates, he said, "there is good reason to think that the economy will get back to 2% inflation while maintaining a strong labor market."
A rate cut in mid-September, coming less than two months before the presidential election, could bring some unwelcome political heat on the Fed, which seeks to avoid becoming entangled in election-year politics. Former President Donald Trump has argued that the Fed shouldn't cut rates so close to an election. But Powell has repeatedly underscored that the central bank would make its rate decisions based purely on economic data, without regard to the political calendar.
In his remarks, Powell said the Fed is increasingly concerned about slower hiring and a rising unemployment rate, even while it still wants to see inflation fall further. That dual focus is replacing the Fed's previous singular focus on inflation.
"The cooling in labor market conditions is unmistakable," the Fed chair said. "Job gains remain solid but have slowed this year. ... We do not seek or welcome further cooling in labor market conditions."
In what amounted to something of a victory lap, Powell noted in his speech Friday that the Fed had succeeded in conquering high inflation without causing a recession or a sharp rise in the unemployment rate, which many economists had long predicted.
The Fed chair attributed that outcome to the unraveling of the pandemic's disruptions to supply chains and labor markets, and a reduction in job vacancies, which allowed wage growth to cool.
Powell also addressed criticism that the Fed was too slow to raise rates even as inflation had begun surging once the pandemic recession ended. Higher rates are intended to cool borrowing and spending, slow the economy and tame price increases.
Fed officials had initially argued that the price spikes coming out of the pandemic in early 2021 were merely "transitory" and would soon fade as the supply chain disruptions that left some grocery shelves bare and auto lots empty had healed.
Powell acknowledged that the healing of supply disruptions took much longer than the Fed had expected - and so did the persistence of high inflation.
"The good ship transitory was a crowded one, with most mainstream analysts and advanced-economy central bankers on board," Powell said. "I think I see some ship-mates out there today," he said, in an ad-libbed remark addressed to the economists and central banks assembled for the conference.
After the government reported this month that hiring in July was much less than expected and that the jobless rate reached 4.3%, the highest in three years, stock prices plunged for two days on fears that the U.S. might fall into a recession. Some economists began speculating about a half-point Fed rate cut in September and perhaps another identical cut in November.
But healthier economic reports last week, including another decline in inflation and a robust gain in retail sales, partly dispelled those concerns. Wall Street traders now expect the Fed to cut its benchmark rate by a quarter-point in both September and November and by a half-point in December. Mortgage rates have already started to decline in anticipation of rate reductions.
A half-point Fed rate cut in September would become more likely if there were signs of a further slowdown in hiring, some officials have said.
The Associated Press and ABC News contributed to this report.