The Dow Jones Industrial Average exploded by as much as 700 points after Federal Reserve Chairman Jerome Powell reassured investors that the central bank would pay attention to market conditions before implementing interest rate hikes. "We are always prepared to shift the stance of policy and to shift it significantly" if needed.
Mr Trump's attacks have added to the jitters, since it could cause the Fed to tighten policy just to prove its independence.
The president has accused Powell of hurting the economy by raising interest rates.
USA employers hired the most workers in 10 months and wages accelerated at a robust pace in December, suggesting the economy would avoid a sharp slowdown.More news: Bulls trade Holiday to Grizzlies for Brooks, Selden
Powell's Fed hiked rates four times a year ago and projections from its December 19 meeting show officials expect two more hikes in 2019.
Former Fed Vice Chairman Donald Kohn praised Powell's message.
In response to questions, Powell also signaled a willingness to include changes to the Fed's gradual run-off of its balance-sheet in any review of monetary policy.
"This should, at least for today, mute expectations that the Fed is off the table completely this year", said Omair Sharif, a senior economist at Societe Generale in NY.More news: Liverpool agree deal to sell Dominic Solanke for £19m
Trump has criticized the Fed chief for raising rates, and Bloomberg News reported December 21 that the president had discussed firing Powell.
Asked at an economic conference in Atlanta if he would step down should Mr Trump request his resignation, Mr Powell said, "No".
The Fed is also below its estimates of full employment.
During an amicable discussion that had Powell and his immediate past predecessors, Janet Yellen and Ben Bernanke, expressing similar views on the economy and on the need for the Fed to set its policy independently of political considerations. The PBOC is certainly responding and hopefully they can shore up growth but so long as the trade war is raging, there isn't going to be a big turnaround.More news: NASA declares New Horizons flyby of Ultima Thule a huge success