The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, he said.
The Dow surged on the news and closed up 600 points, or more than 2%, in midday trading.
Next month's expected quarter-point increase would lift the central bank's target for the federal funds rate to a range of 2.25 per cent to 2.5 per cent.
That contrasted with a remark Powell made in October that the Fed's policy rate was still well below neutral.
"His description highlights the significant uncertainty around estimates of neutral, a theme he mentioned at his speech at Jackson Hole in August", Jan Hatzius, chief U.S. economist for Goldman Sachs, wrote in a note to clients Wednesday.
Nor did the Fed and other major economic bodies see the "excesses" that led to the financial meltdown of 2008, instead claiming that the USA and world economy had entered a period of "great moderation".
As a result, "almost all" Fed members said a rate hike "was likely to be warranted soon".
Powell hints at slower rate-hike pace
The US Dollar basket (DXY) dipped lower but remains in a strong uptrend, underpinned by interest rate expectations. Some analysts are now saying the Fed may decide to raise rates only once or twice in 2019.
By saying rates were slightly lower than the level he perceives as "neutral", Mr Powell's statement appears to be suggesting at least one more interest rate increase is coming in the near future.
On Wednesday, Federal Reserve Chair Jerome Powell spoke before the Economic Club of NY and the reaction from investors was practically exuberant. Many people, including Trump, say they are hopeful the two leaders will reach a breakthrough and avoid further tariffs.
Mr Trump blames Mr Powell for the rate hikes that he claims are undermining his economic and trade policies. "This sounds like a more flexible approach to policy for 2019 than the impression created by the notion that the Fed has chose to lift the federal funds rate to neutral and that neutral was 3% or higher".
Matthew Cheslock, a trader at Virtu Financial, told CNNMoney editor-at-large Richard Quest on "Markets Now" Wednesday that the market interpreted Powell's comments as meaning that we are "closer to normal rates". "Certainly, all meetings are live now".
Powell noted the word "bubble" wasn't mentioned in the report, though he said some asset prices, such as corporate debt, were high relative to the past.
"The unemployment rate is 3.7 percent-a 49 year low, and many other measures of labor market strength are at or near historic bests", he said.
After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy.
But policymakers may be divided over what to do after that, with some anxious that raising rates after December could "unduly slow" the American economy, just as signs of vulnerability are beginning to gather, the minutes showed. Three of those increases have been under Powell. The US federal funds rate range is now 2.0-2.5 per cent. Home sales, vehicle sales, business investment and other parts of the economy that are sensitive to interest rates have begun to soften, evidence that the Fed's eight rate increases since 2015 are changing household and business behavior.