Many observers now think the central bank may raise interest rates earlier than expected next year, in an effort to keep a lid on rising prices.

Up until now, the Fed has been willing to tolerate somewhat higher inflation in hopes of fostering full employment. But as the jobs recovery drags on, Powell appears to be rethinking that balancing act.

"To get back to the kind of great labor market we had before the pandemic, we're going to need a long expansion," Powell said. "To get that, we're going to need price stability. And in a sense, the risk of persistent high inflation is also a major risk to getting back to such a labor market."