Federal Reserve Chair Powell said the US central bank could moderate its stance on interest rates as soon as December

New York (AFP) - Wall Street stocks soared and the dollar fell Wednesday after Federal Reserve Chair Jerome Powell signaled a shift from the central bank’s aggressive policy to counter inflation.

Major US indices, which had been near flat prior to Powell’s appearance, suddenly vaulted higher.

The gains came after European bourses also advanced on better inflation data in the eurozone.

“This was the unofficial pivot the markets have been waiting for,” Forex.com’s Joe Perry said of Powell’s comments. “As a result of Powell’s dovishness, the US dollar index sold off aggressively.”

Powell, appearing at the Brookings Institution in Washington, said the Fed could ease its stance on interest rate hikes “as soon as” December when policymakers are next scheduled to meet.

He added that the full effects of the bank’s rapid tightening are yet to be felt.

“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” he said.

But Powell warned that policy will likely still have to remain tight “for some time” to restore price stability.

The Fed has raised the benchmark lending rate by 0.75 percentage point four consecutive times in recent months, out of six times this year, in an aggressive effort to rein in prices.

Major US indices rallied after the remarks, with the Nasdaq leading the way with a 4.4 percent surge.

The dollar also retreated as markets bet on fewer big rate hikes.

Earlier, Paris and Frankfurt both advanced after eurozone inflation eased to 10 percent in November, the first drop in 17 months, according to official data.

Analysts had expected the inflation rate in the single currency area to fall but the drop was steeper than predicted by Bloomberg and FactSet, who foresaw 10.4 percent.

But the November figure may not convince the European Central Bank that it can stop raising interest rates, as its president Christine Lagarde has expressed scepticism that inflation has peaked.

As late as Monday, Lagarde warned: “I think that there is too much uncertainty … to assume that inflation has actually reached its peak. It would surprise me.”

The inflation figure was still “extraordinarily high” but offered “hope that inflation may have peaked and the deceleration could be faster than anticipated”, said Craig Erlam, senior market analyst at OANDA.

- ‘Intensifying headwinds’ -

In Asia, stocks mostly rebounded as investors looked past weekend demonstrations in China after officials announced moves aimed at softening the zero-Covid strategy.

But in a sign that the leadership was determined to maintain its authority, the country’s top security body called for a “crackdown” against “hostile forces”.

New clashes broke out in China’s southern city of Guangzhou on Tuesday night and into Wednesday, according to witnesses and social media footage verified by AFP.

Data showing China’s factory activity shrank further in November underscored the impact the zero-Covid approach has had on the world’s second-biggest economy.

“The headwinds facing China are intensifying and the protests of recent days could make it even more challenging to navigate… Even the best-case scenario is one of significant turbulence,” added Erlam.

- Key figures around 2140 GMT -

New York - Dow: UP 2.2 percent at 34,589.77 (close)

New York - S&P 500: UP 3.1 percent at 4,080.11 (close)

New York - Nasdaq: UP 4.4 percent at 11,468.00 (close)

London - FTSE 100: UP 0.8 percent at 7,573.05 (close)

Frankfurt - DAX: UP 0.3 percent at 14,397.04 (close)

Paris - CAC 40: UP 1.0 percent at 6,738.55 (close)

EURO STOXX 50: UP 0.8 percent at 3,964.72 (close)

Tokyo - Nikkei 225: DOWN 0.2 percent at 27,968.99 (close)

Hong Kong - Hang Seng Index: UP 2.2 percent at 18,597.23 (close)

Shanghai - Composite: UP 0.1 percent at 3,151.34 (close)

Euro/dollar: UP at $1.0408 from $1.0330 on Tuesday

Dollar/yen: DOWN at 138.03 yen from 138.63 yen

Pound/dollar: UP at $1.2052 from $1.1952

Euro/pound: DOWN at 86.34 pence from 86.42 pence

Brent North Sea crude: UP 2.9 percent at $85.43 per barrel

West Texas Intermediate: UP 3.0 percent at $80.55 per barrel