And in a textbook-type cross-asset move toward safety in times of trouble, the Japanese yen hit an eight-week high against the US dollar while spot gold also reached a two-month high. The stock fell $1.07 to $5.17.
"The data confirms the Fed will have a wait-and-see attitude", said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.
The CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility, ended at a session low of 11.11 after rising as high as 12.63.
Traders across the globe reacted with dismay to Trump's warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough". U.S. PPI came in at -0.1%, below the 0.1% forecast and previous read.
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the trigger. Futures pointed to further declines on Wall Street, with S&P 500 futures down 0.3 percent at 2,465.70 and Dow futures falling 0.2 percent to 21,986.00.
The pan-European FTSEurofirst 300 index lost 1.06 percent and MSCI's gauge of stocks across the globe shed 0.17 percent.
US stocks have risen week after week this year - with the S&P up more than 9 percent - in extremely low volatility, as strong corporate earnings and an improving global economy offset disappointment that President Donald Trump's promises to lower corporate taxes and implement a massive infrastructure spending have so far failed to see the light of day.
"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.
GOT A PULSE: Health care stocks, which have been in a slump, were headed higher.
The Korean story has seen the yen gain around 1.5 percent this week, its biggest rise since mid-May.
The Swiss franc and Japanese yen are often sought out in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses. Nvidia fell $4.73, or 2.7 percent, to $167.38.
Dudley also cautioned that "it's going to take some time" for inflation to rise to the central bank's 2 percent target even as he offered a generally positive outlook for the US economy, job market and price pressures.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY. Earlier in Asia, Japan's benchmark Nikkei 225 slipped less than 0.1 percent, while Hong Kong's Hang Seng slid 1.1 percent.
Sterling was last trading at $1.3009, up 0.27 percent on the day.
Bond prices rose. The yield on the 10-year Treasury note slipped to 2.25 percent from 2.26 percent late Tuesday. Gold and bond prices were headed higher.
The euro, which hit its highest since the start of 2015 on August 2, dipped 0.1 percent to $1.1761 in morning trade in Europe.
The price of gold also surged for the second day in a row as the December bullion contract advanced US$10.80 to US$1,290.10 an ounce.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in US crude inventories.
The Stoxx Europe 600 fell 0.3% to 378.56, led by losses in the industrial group.