A run of key data in recent months has indicated a series of bumper hikes last year was beginning to pay off, fuelling hopes that the central bank could pause its tightening cycle and even lower borrowing costs at the end of the year.
But a forecast-busting jobs report on Friday -- showing half a million new jobs created in January -- dealt traders a heavy blow and stoked speculation that more increases were on the way.
And on Tuesday, Powell confirmed those fears, telling The Economic Club of Washington, DC that he saw 2023 to be a year of "significant declines in inflation", but it will only hit the Fed's two percent target next year.
But he warned "we think we are going to need to do further rate increases", adding that the "labour market is extraordinarily strong".
"If the data were to continue to come in stronger than we expect, and we were to conclude that we needed to raise rates more... then we would certainly do that," he said.
The remarks were echoed by Minneapolis Fed chief Neel Kashkari -- considered a dovish member of the Fed board -- who said rates might need to rise from the current 4.5-4.75 percent to 5.4 percent, higher than markets are currently pricing in.
"When you have the likes of Neel Kashkari reiterating his belief of a Fed Funds rate of 5.4 percent before a pause... it would appear that once again US markets are indulging in wishful thinking when it comes to where rates are likely to go over the next 12 months," said CMC Markets analyst Michael Hewson.
Powell's comments were also similar to what he said last Wednesday, after the bank's latest policy meeting, which sparked an equities rally.
And Wall Street again pushed higher Tuesday.
However, OANDA's Edward Moya said: "It will probably go down as a missed opportunity as (Powell) could have pushed back on what the market is pricing in.
"Rate cut bets for next winter firmly remain intact and that should be an issue for a Fed trying to get inflation somewhere near target."
Eyes are now on the latest inflation report due next Tuesday.
"Peak rate expectations will likely be determined next week and as long as we don't have a scorching inflation report, appetite for risky assets should hold up," Moya added.
Sydney, Seoul, Singapore, Wellington, Taipei, Manila, Mumbai and Jakarta all rose Wednesday but Hong Kong, Shanghai, Tokyo and Bangkok fell.
London rose to a new record soon after opening while Paris and Frankfurt were also higher.
There was little early reaction to Joe Biden's annual State of the Union address to Congress, where he said the United States was "better positioned than any country on Earth right now".
He also said he would not allow the country to default on its debt and urged lawmakers to reach an agreement to raise the debt ceiling.
The dollar extended losses against its main peers after falling Tuesday, while oil edged higher following a surge on fresh China demand bets as the country emerges from years of zero-Covid.
- Key figures around 0820 GMT -
Tokyo - Nikkei 225: DOWN 0.3 percent at 27,606.46 (close)
Hong Kong - Hang Seng Index: DOWN 0.1 percent at 21,283.52 (close)
Shanghai - Composite: DOWN 0.5 percent at 3,232.11 (close)
London - FTSE 100: UP 0.5 percent at 7,904.95
Dollar/yen: DOWN at 130.90 yen from 131.07 yen on Tuesday
Euro/dollar: UP at $1.0750 from $1.0732
Pound/dollar: UP at $1.2088 from $1.2043
Euro/pound: UP at 88.92 pence from 89.03 pence
West Texas Intermediate: UP 0.4 percent at $77.46 per barrel
Brent North Sea crude: UP 0.3 percent at $83.93 per barrel
New York - Dow: UP 0.8 percent at 34,156.69 (close)
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