Asian markets sank Thursday and the dollar held gains following a severe sell-off on Wall Street that came after the Federal Reserve halved its rates outlook and boss Jerome Powell warned officials' focus was back on fighting inflation.
Attention now turns to the Bank of Japan as it holds its own policy meeting with debate swirling around whether it will hike borrowing costs for a third time this year.
All three main indexes in New York were sent spinning -- led by a rout in high-flying tech titans -- after the Fed delivered what was described as a "hawkish cut" in rates.
Some suggested the retreat may have also been fuelled by president-elect Donald Trump's opposition to a spending package aimed at averting a fast-approaching US government shutdown.
While the reduction had been widely expected, its closely watched "dot plot" of projections for further moves suggested the bank will cut rates just twice next year, as opposed to the four previously forecast.
Investors had already been speculating about how the Fed would position itself as Trump prepares to take office amid warnings that his plans to cut taxes, slash regulations and impose tariffs on China could reignite inflation.
That was followed by Powell's comments in which he indicated that the battle against inflation was key as it has remained stubbornly above the bank's two percent target.
"We need to see progress on inflation," he said in a news conference. "We moved quickly to get to here, but moving forward we are moving slower."
While the Fed lifted its economic growth outlook, the prospect of rates staying higher than anticipated for longer dealt a hefty blow to markets, with the S&P 500 losing three percent and the tech-heavy Nasdaq more than that.
The dollar also cruised higher against its peers and was sitting around a two-year high against the euro.
Asian markets all fell, with Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Taipei, Singapore, Wellington, Manila and Jakarta all well down.
Jack McIntyre, a portfolio manager at Brandywine Global, said the rate cut had already been priced in by markets but "when you include the forward guidance components, it was a hawkish cut".
"Stronger expected growth married with higher anticipated inflation -- it's no wonder the Fed reduced the number of expected rate cuts in 2025.
"The results of this meeting raise the question: if the market wasn't expecting a rate cut today, would the Fed actually have delivered one? I suspect not.
"The Fed has entered a new phase of monetary policy, the pause phase. The longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut. Policy uncertainty will make for more volatile financial markets in 2025."
Eyes are now on the BoJ's policy decision later Thursday, with expectations it will hold off hiking again, instead waiting until its January meeting.
However, observers pointed out that policymakers have surprised in the past and a shift upwards could still be on the cards as the bank looks support the yen, which is pushing back towards 155 per dollar.
Tokyo - Nikkei 225: DOWN 1.0 percent at 38,708.38 (break)
Hong Kong - Hang Seng Index: DOWN 1.1 percent at 19,655.82
Shanghai - Composite: DOWN 0.7 percent at 3,358.86
Euro/dollar: UP at $1.0378 from $1.0365
Pound/dollar: UP at $1.2587 from $1.2581
Dollar/yen: UP at 154.79 yen from 154.73 yen
Euro/pound: UP at 82.45 pence from 82.38 pence
West Texas Intermediate: DOWN 0.5 percent at $70.22 per barrel
Brent North Sea Crude: DOWN 0.6 percent at $72.99 per barrel
New York - Dow: DOWN 2.6 percent at 42,326.87 (close)
London - FTSE 100: UP 0.1 percent at 8,199.11 (close)
