The Dow Jones Industrial Average decreased 313.98 points, or 1.19 percent, to 26,164.04. The S&P 500 fell 45.73 points, or 1.56 percent, to 2,893.06. The Nasdaq Composite Index was down 132.52 points, or 1.67 percent, to 7,823.78.
All of the 11 primary S&P 500 sectors closed lower, with financials down 2.02 percent, the worst-performing group.
The U.S. central bank will start expanding its balance sheet again, Powell said Tuesday at the annual meeting of the National Association for Business Economics.
As for the monetary policy ahead, Powell said "policy is not on a preset course," and the Fed will "act as appropriate to support continued growth."
On the economic front, U.S. producer price index (PPI), which measures inflation before it reaches consumers, decreased 0.3 percent in September, marking the biggest drop in eight months, the Department of Labor reported on Tuesday.
Meanwhile, optimism among U.S. small-business owners weakened in September mainly due to the impact of tariffs and uncertainty about the future economy, according to a report from the National Federation of Independent Business (NFIB).
The NFIB Small Business Optimism Index registered 101.8 in September, down 1.3 points from 103.1 in August, said the report.
A flurry of newly-released disappointing U.S. data raised hope for easier monetary policy from the Federal Reserve.
Market expectations for a rate cut later this month were more than 80 percent, according to the CME Group's FedWatch tool Tuesday afternoon.
Wall Street is also cautiously awaiting a fresh round of U.S.-China trade talks, which are set to begin later this week.