In much-anticipated testimony to US lawmakers, Powell dealt a hammer blow to traders who had held faint hopes that the central bank could pause its tightening campaign soon and give a much-needed boost to equities.
A string of data in recent weeks has indicated the world's top economy remained in rude health, including strong employment, consumer spending, factory activity and inflation figures.
"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell told the Senate Banking Committee.
"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
He said officials would "stay the course until the job is done".
Inflation is currently running above six percent and while that is down from multi-decade peaks seen last year, it is still well above the bank's target of two percent.
Investors are now betting on the Fed to lift rates 50 basis points at its next meeting later this month, twice as much as its last meeting.
It hiked by half a point in December following four straight 75-point increases.
Powell's comments were more hawkish than expected, and Neil Wilson at Markets.com said: "For now the market is hearing the 'higher-for-longer' message loud and clear and doesn't see the Fed being dissuaded."
And Kellie Wood, at Schroders, added: "A six percent terminal rate is not out of the question now."
Rates are currently sitting at 4.5-4.75 percent.
The prospect of borrowing costs going even higher has ramped up fears of a recession.
Two-year Treasury yields are now more than a percentage higher than those for 10-year Treasuries for the first time since 1981, which is seen as a flashing light for a possible contraction.
All three main indexes on Wall Street closed deep in the red, and most of Asia followed suit.
Hong Kong shed more than two percent, while Shanghai, Sydney, Seoul, Singapore, Taipei, Mumbai, Bangkok, Wellington and Jakarta were also well down.
However, Tokyo ended slightly higher as exporters won support from a weaker yen.
The Japanese unit tumbled against the dollar Tuesday, along with other major currencies in the wake of Powell's testimony.
And the greenback maintained its strength in Asian business. It was at multi-month highs against the Japanese unit as well as the pound and euro.
The elevated dollar was also depressing crude, which is priced in the US unit, making it more expensive for customers using other currencies.
Both main contracts sank more than three percent Tuesday, and were barely moved Wednesday.
Powell is due to speak again later in the day, while traders will now be focused on the release of February jobs data on Friday.
Another forecast-beating reading -- as January's was -- will put pressure on the Fed to announce a bigger rate hike and further dent risk sentiment among traders.
- Key figures around 0700 GMT -
Tokyo - Nikkei 225: UP 0.5 percent at 28,444.19 (close)
Hong Kong - Hang Seng Index: DOWN 2.2 percent at 20,078.66
Shanghai - Composite: DOWN 0.1 percent at 3,283.25 (close)
Dollar/yen: UP at 137.68 yen from 137.13 yen on Tuesday
Euro/dollar: DOWN at $1.0538 from $1.0552
Pound/dollar: UP at $1.1831 from $1.1827
Euro/pound: DOWN at 89.07 pence from 89.19 pence
West Texas Intermediate: DOWN 0.1 percent at $77.54 per barrel
Brent North Sea crude: UP 0.1 percent at $83.38 per barrel
New York - Dow: DOWN 1.7 percent at 32,856.46 (close)
London - FTSE 100: DOWN 0.1 percent at 7,919.48 (close)
dan/ssy
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