The German government's commissioner on anti-Semitism Felix Klein sparked alarm when he said in a recent interview that he “cannot advise Jews to wear the kippa everywhere all the time in Germany”.
Pompeo expressed his disquiet over the warning during a visit to Berlin on Friday.
“We were concerned to see Jews discouraged from wearing the yarmulke in public out of safety concerns.
“None of us should shrink in the face of prejudice,” he said at a press conference.
Germany, like other Western countries, has watched with alarm as anti-Semitic and other racist hate speech and violence rose in recent years while the political climate has coarsened and grown more polarised.
Israel's President Reuven Rivlin has voiced shock at Klein's warning, calling it a “capitulation to anti-Semitism”.
Chancellor Angela Merkel's spokesman subsequently stepped in to stress that it was the job of the state to ensure that “anyone can go anywhere in our country in full security wearing a kippa”.
Anti-Semitic crimes were up by 20 percent in Germany last year, according to interior ministry data which blamed nine out of 10 cases on the extreme right.
The arrival in parliament of the far-right AfD party, whose leaders openly question Germany's culture of atonement for World War II atrocities, has also contributed to the change in atmosphere.
The Central Council of Jews in Germany has already issued several warnings about wearing the kippa in public.
In one prominent case last year, a 19-year-old Syrian man was convicted for assault after lashing out with his belt at an Israeli man wearing a Jewish skullcap while shouting “yahudi”, Jew in Arabic.
German President Frank-Walter Steinmeier on Friday telephoned Jewish council president Josef Schuster over the issue and issued a statement stressing that it was the “job of the state to protect our Jewish fellow citizens and to intervene where necessary”.