US underlying inflation rose at the highest rate in almost 1-1/2 years in June, possibly easing some of the pressure on the Federal Reserve to take aggressive monetary action.
Apparel prices surged 1.1 per cent after being unchanged in May.
In his testimony, the first installment of two days on Capitol Hill this week, Powell also downplayed a strong June jobs report and dismissed claims that the USA labor market is hot.
Gus Faucher, chief economist at PNC bank, said there were sound economic reasons for a cut.
St. Louis Fed President James Bullard, who voted in favor of a rate cut in June, doesn't see the need for such an aggressive move.
Josh Nye, senior economist at Royal Bank of Canada, notes that the USA headline CPI dipped to 1.6% y/y in June while core CPI ticked up to 2.1% y/y (consensus 2.0%).
PPI, excluding volatile food and energy prices, is anticipated to have risen 0.2% month-over-month in June, matching May's pace. The CPI rose 0.1 per cent in May.
The S&P 500 index rose 0.5% to 2,993.07.
"As Powell also stated last month, 'Committee participants expressed concerns about the pace of inflation's return to 2%,'" Deutsche Bank economist Brett Ryan wrote in a note. Powell also said 'there is a risk that weak inflation will be even more persistent than we now anticipate'.
"Importantly, measures of long-run inflation expectations have declined and are likely influencing price and wage setting behavior".
Much of Trump's criticism has focused on Powell, his choice as Fed chairman.
Just last month, Trump told NBC's Meet the Press "I don't think [Powell] has done a good job", and that he has the authority to fire him if he wants to, but also denied explicitly threatening Powell's job.
Short-term bond yields fell, and the USA dollar fell against a basket of other currencies. Stocks on Wall Street were mixed. Economists polled by Reuters had forecast claims rising to 223,000 last week.
The Fed's key short-term rate affects 30-year mortgages - the most common purchase home loan - and other long-term rates only indirectly.
"The labor market has not weakened in a meaningful way since the escalations in trade policy a few months ago", said Daniel Silver, an economist at JPMorgan in NY. Slower global growth is also dragging on exports, they noted. Rent of primary residence was up 0.4%. Healthcare costs increased 0.3%, after a similar advance in May. Prices for these goods tumbled in March and April after the government introduced a new method and data to calculate their cost. While the rate will eventually drop by a quarter percentage point, it might not happen as quickly as rates increased because card issuers often have language in their card agreements that allows them to use the highest prime rate in effect during the preceding 60-day period, McBride says.
The index for household furnishings and operations rose 0.8% from the prior month, the most since 1991, reflecting a record 6.1% jump for gardening and lawn care services.