The Dow Jones Industrial Average rose 737.24 points, or 2.18 percent, to 34,589.77. The S&P 500 increased 122.48 points, or 3.09 percent, to 4,080.11. The Nasdaq Composite Index was up 484.22 points, or 4.41 percent, to 11,468.00.
All the 11 primary S&P 500 sectors ended in green, with technology and communication services up 5.03 percent and 4.92 percent, respectively, leading the advance.
In a highly anticipated speech at the Brookings Institution, Powell signaled the Fed may slow the pace of interest-rate increases next month, giving markets hope that the aggressive cycle of rate increases will ease up.
"The time for moderating the pace of rate increases may come as soon as the December meeting," Powell said.
Meanwhile, he emphasized that a smaller hike shouldn't be taken as a sign the central bank will let up on its inflation fight anytime soon.
Instead, the Fed chief cautioned that monetary policy is likely to stay restrictive for some time until real signs of progress emerge on inflation. "Despite some promising developments, we have a long way to go in restoring price stability," he said.
The U.S. central bank has raised interest rates for six times this year, including the 75 basis point hike it delivered at each of its past four meetings, in a bid to tame inflation.
U.S. equities have been under considerable pressure this year as investors grew fearful that the Fed's aggressive policy tightening would throw the economy into a recession.
But in recent weeks, equities have experienced several periodic rallies, as hopes have resurfaced that the Fed will pivot to a more dovish stance, especially after signs of cooling in October U.S. inflation.
Analysts at UBS said conditions for a sustained equity market rally are not yet in place, noting, "we see the risk-reward outlook for equity markets in the next three to six months as unfavorable."
"With inflation still high, interest rate cuts remain a distant prospect," they said, adding that "aggressive tightening will likely lead to further economic weakness and a contraction of U.S. earnings in 2023."
Markets are pricing in a nearly 80 percent chance of a 50 basis-point rate hike at the Fed's December meeting, according to CME Group data on Wednesday.
On the economic front, payroll services firm ADP reported that U.S. private payrolls rose by 127,000 in November. Economists polled by The Wall Street Journal had forecast a gain of 190,000 private sector jobs.
The U.S. Commerce Department reported that the U.S. real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the third quarter of 2022, higher than a previously reported 2.6 percent advance.
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