U.S. stocks closed out a volatile session sharply higher Tuesday after Federal Reserve Chair Jerome Powell embraced the presence of disinflation in the economy during a speech in Washington, D.C.

The S&P 500 (^GSPC) soared 1.3%, while the Dow Jones Industrial Average (^DJI) jumped 265 points, or 0.7%. The technology-heavy Nasdaq Composite (^IXIC) advanced 1.9%.

In an interview with Carlyle Group co-founder David Rubenstein at the Economic Club of Washington, D.C., Tuesday afternoon, Powell said the "disinflationary process" in the U.S. economy has begun, while maintaining that rate hikes will likely be necessary to bring inflation back to its 2% target.

"We will likely need to do additional rate increases," Powell said, while adding that restoring price stability "is going to take quite a bit of time, and is not going to be smooth."

“The disinflationary process, the process of getting inflation down, has begun, and it's begun in the goods sector,” Powell also said, though adding "it has a long way to go," and "these are the very early stages of disinflation.”

Investors had largely expected the U.S. central bank chief to strike a hawkish tone in his remarks after Friday's blowout jobs report showed payrolls grew by 517,000 in January.

“Powell is in wait-and-see mode," David Russell, vice president of market intelligence at TradeStation said in a note. "He refrained from walking back his disinflation comment. If anything, he reiterated it in a guarded way."

"Today’s comments do nothing to undermine the recent strength in the market," Russell added.

In other central bank news, the Reserve Bank of Australia raised interest rates by 25 basis points to an over 10-year high of 3.35%, following suit on the U.S. Federal Reserve's move last week.

Back in the U.S. stock market, shares of Chinese search engine Baidu (BIDU) jumped 12.2% Tuesday after indicating it’s on track to unveil its ChatGPT-like AI service in March.

Wild swings continued for meme stock Bed Bath & Beyond (BBBY). Shares sank more than 48.6% after the beleaguered retailer announced plans to raise $1 billion through an equity offering. The plunge follows a surge of as much as 120% on Monday.

Shares of education technology company Chegg (CHGG) tanked 17.1% in on the heels of disappointing guidance from executives on sales expectations.

Pinterest's (PINS) stock fell 5.2% after the platform reported quarterly revenue late Monday that missed Wall Street estimates, renewing concerns about weakness in the ad market.

Equity markets have been on a climb higher in 2023, with risk-on sentiment fueled by expectations that waning housing and manufacturing data and a cooldown in inflation would prompt the Federal Reserve to pause and even cut rates sooner than expected.

Minneapolis Federal Reserve President Neel Kashkari said during an interview with CNBC Tuesday morning that Friday's shock jobs data suggests he and his central bank colleagues must stay the course on fighting inflation.

“We know that raising rates can put a lid on inflation,” Kashkari said in an interview on CNBC's “Squawk Box.” “We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy.”

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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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