The Dow Jones Industrial Average dipped 505.44 points, or 1.55 percent, to 32,147.76. The S&P 500 decreased 96.41 points, or 2.50 percent, to 3,759.69. The Nasdaq Composite Index shed 366.05 points, or 3.36 percent, to 10,524.80.
All the 11 primary S&P 500 sectors ended in red, with consumer discretionary and technology down 3.79 percent and 3.47 percent, respectively, leading the losses.
The Fed on Wednesday concluded its two-day monetary policy meeting, delivering a fourth straight 75-basis-point rate hike, as part of its aggressive campaign against inflation that's running at multi-decade highs.
The rate hike brings the central bank's policy rate to a new target range of 3.75 percent to 4 percent, the highest level since January 2008.
Stocks initially rallied as the central bank opened the door to slowing pace within its statement.
In determining the pace of future increases in the target range, the Fed "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the statement read.
Yet, the market lost momentum after Powell suggested that the pace of rate hikes matters less than how high rates go and how long the Fed holds rates at a restrictive level.
In his customary press conference shortly after the Fed's rate announcement, Powell noted that the ultimate level of rates will be higher than initially thought, and reiterated that the notion of a pause any time soon was very premature.
The inflation fight was far from done, said the Fed chief, adding that "we have a way to go."
"The biggest takeaway was not the expected strong hint at a slower pace; it was the realization rates would have to go higher," Chris Low, chief economist at FHN Financial, said in a note on Wednesday.
Powell's remarks dashed market hopes that the central bank would signal it might be considering dialing back on its aggressive rate increases, which have weighed on U.S. equities this year.
Analysts at UBS said "it is too early to expect the Fed to signal a more dovish stance" as the U.S. labor market remains tight and the Fed also has yet to see evidence of cooling inflation.
Payroll services firm ADP reported Wednesday that U.S. private employment rose by 239,000 in October, beating market expectations.
Data released last week showed that September U.S. core PCE (personal consumption expenditures) inflation, the Fed's preferred measure of inflation, rose 0.5 percent for a 5.1 percent year-over-year increase, up from 4.9 percent in August.
Conditions for an equity market bottom are not yet in place, and investors should be prepared for more volatility ahead, UBS analysts cautioned.
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