The feature as written indeed can't work without sending every keystroke. That doesn't mean it's any less intrusive. I'd even dare say it was probably not accidentally designed that way.
Still, it's a feature you can disable. I'd love to be able to disable everything the Like buttons of the world do to unsuspecting visitors, but how?
Edit: Also if you change your default search engine to Bing, then Chrome is behaving as a keylogger for Microsoft by your definition.