Stock markets around the world sank on Thursday while the dollar rallied after the Federal Reserve warned that US interest rates would go higher than previously expected in its fight against decades-high inflation.
Meanwhile the Bank of England warned that Britain faced a recession set to last until mid-2024.
The Fed on Wednesday unveiled a fourth straight 0.75-percentage-point increase as expected – the sixth hike this year to cool rampant prices.
The dollar rose strongly against the pound on Thursday despite the Bank of England also delivering a 0.75-percentage-point hike – the largest in 33 years – to 3.0 per cent, or the highest rate since 2008.
The pound fell by two per cent against the dollar in afternoon trading.
Norway's central bank raised its policy rate for a fourth consecutive time, with a quarter-point increase that took it to its highest level since 2009 at 2.5 per cent.
European Central Bank president Christine Lagarde flagged more interest rate hikes on Thursday with comments that a "mild" eurozone recession was looming but would not be enough to bring down record-high inflation.
Oil prices also fell heavily on Thursday as aggressive rate hikes increase expectations of a global recession.
Oil prices also fell heavily on Thursday as aggressive rate hikes increase expectations of a global recession
Hong Kong led stock market losses as the city's central bank hiked rates in line with the Fed, owing to their policy link via the dollar peg.
Traders gave back a chunk of the previous two days' gains, which came on the back of speculation China was planning to roll back some of its painful zero-COVID policies.
Adding to the selling was confirmation from Beijing's health authority that it intended to stick to the strategy.
'Some ways to go'
"Stocks fell... after the Federal Reserve raised benchmark interest rates and warned that there was still some ways to go in its efforts to tame inflation," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Before the Fed announcement, stocks had rallied for more than a week on speculation the US central bank would indicate that its rate tightening could soon reach a peak as the world's biggest economy showed signs of slowing.
Yet Fed chief Jerome Powell poured cold water on these hopes for a "pivot" in policy, telling a news conference that "incoming data since our last meeting suggests that ultimate level of interest rates will be higher than previously expected".
He added that "we still have some ways" until borrowing costs were at the necessary level and that it "is very premature to be thinking about pausing".
Briefing.com analyst Patrick O'Hare said that for investors "the point that registered was (Powell's) view that it is very premature to talk about pausing the rate hikes".
Another key point was that "the Fed still has a ways to go to get the policy rate to a restrictive level that is sufficient for getting inflation back down to the 2.0 per cent target," O'Hare noted.
Moreover, Powell indicated "that the Fed's terminal rate is apt to be higher than previously expected and is likely to be held there longer than previously expected", which upended previous market expectations.
Investors now expect Fed rates to top out at more than five per cent, compared with four per cent previously.
Global equities have slumped this year on mounting fears that rising borrowing costs will curtail consumer and business spending and spark a global recession.
"The Federal Reserve... didn't offer any real crumbs of comfort for traders or indeed the global economy when it came to how rapidly the now relentless – and potentially damaging – run of rate hikes may conclude," said Scope Markets analyst James Hughes.