"If the President asked you to resign, would you do it?"
Yellen, the Fed chair from 2014 to 2018 before Trump replaced her with Powell last February, said: "Obviously, the president has the right to comment on the Fed, but I would worry that if it continues or intensifies that it could undermine confidence in the Fed - and the market confidence in the Fed's judgment".
Powell's willingness to be flexible on interest rates was welcome news to investors, many of whom anxious that Fed chair risked cutting off the current economic expansion by continuing to raise interest rates despite signs the US economy was cooling off a little.
"We will be patient as we watch to see how the economy evolves", Powell told the American Economic Association on Friday.
Powell called the December jobs report "very strong" and said USA data seems "to be on track to sustain good momentum into the new year".
At the same time, he reassured investors of the Fed's flexibility.
Jerome Powell, chairman of the US Federal Reserve. The market bounce came after a volatile December selloff in which traders grew increasingly skeptical of the Fed's upbeat forecasts and plans to keep hiking interest rates in 2019.
The Fed chief stressed that the economy remained on track and that the job market was quite strong. We need to be very vigilant. "The Fed has wilfully ignored trade and interest rate risks while talking a hawkish game".
Federal agencies told to hold off pay raises
The impasse centers around more than $5 billion Trump wants to fund a physical wall along the U.S. -Mexico border. Congress enacted a law capping pay for top federal employees in 2013 and renewed it every year.
While Trump has sent out a number of tweets criticizing Powell and calling the Fed the biggest threat to the economy, Powell said that he had not received any direct pressure from the White House.
Trump has for months criticized the Fed chief for raising rates, and Bloomberg News reported December 21 that the president had discussed firing Powell.
The recent market turbulence has posed a dilemma for the Fed, as a seeming loss of confidence in financial markets about the USA economy's prospects was offset by upbeat data from the real economy, including a strong December jobs report. Powell responded with a terse "No" when asked if he would resign if Trump requested him to do so.
Meanwhile the Labor Department said USA employers added 312,000 jobs last month, a far stronger result than experts had anticipated.
"Everyone would be better off if it was clear that the Fed is making its decisions based on its mandate and on its assessment of the long-term needs of the economy, which I'm completely confident that they will do", Bernanke said.
Powell said he did not think the latter was having much impact on markets, but that the strategy would be changed if it started interfering with the bank's broader goals of maintaining strong employment and stable inflation. "Powell is definitely trying to calm the markets". But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.
The US dollar retreated against the euro on Friday, giving up all the gains logged after a robust US jobs report, following comments from Federal Reserve Chairman Jerome Powell that the US central bank will be sensitive to the downside risks the market is pricing in.