Asian equities fell Thursday after the Federal Reserve signalled US interest rates would go higher than expected and warned the world's biggest economy would grow less than expected next year, fanning fears a recession is on the way.
Traders took their lead from Wall Street, where a more hawkish statement than expected dented hopes the central bank could soften its approach to fighting inflation.
Markets had rallied after data on Tuesday showed the consumer price index rose less than forecast in November, marking a fifth straight slowdown and the lowest level since December last year.
But the Fed appeared less inclined to accept that the recent figures were enough to indicate enough progress was being made.
While it lifted rates by the expected 50 basis points -- down from the previous four 75-point hikes -- its "dot plot" of forecasts suggested it saw them top out next year at 5.1 percent, higher than markets had predicted.
"Fifty basis points is still a historically large increase, and we still have some ways to go," Fed boss Jerome Powell told reporters after the announcement.
He added that he "wouldn't see us considering" any cuts until officials were happy that inflation was on track to its two percent target.
"It will take substantially more evidence to give confidence that inflation is on a sustained downward path," he said.
The Fed also cut its expectations for growth next year as it faced headwinds from the tighter monetary policies, stirring fresh warnings of a recession, which have weighed on equities for much of the year.
But Powell said: "I don't think anyone knows whether we're going to have a recession or not, and if we do, whether it's going to be a deep one or not."
After Wall Street's retreat, Asia fell into the red, with Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Taipei, Manila and Jakarta all down.
"The Fed did not welcome the disinflation trends that have just started to emerge and focused on robust job gains and elevated inflation," said OANDA's Edward Moya.
"Any hopes of a soft landing disappeared as the Fed seems like they are committed to taking rates much higher."
Despite the tougher talk from the Fed, Tomo Kinoshita at Invesco Asset Management said: "US shares have seen limited falls, indicating that financial markets are not wholeheartedly believing in that hawkishness, perhaps because some Fed policymakers have talked about the possibility of rate cuts already."
But he added: "Long-term bond yields appeared to have peaked out, which is a sign investors are now worried about a recession."
The likelihood of rates going even higher outweighed hopes about China's emergence from nearly three years of strict zero-Covid containment measures that have crippled its economy.
While the reopening is expected to provide a much-needed boost to growth, there is an immediate worry about the impact of soaring infection numbers on the healthcare system and firms' ability to function.
And in a sign of the effect of the anti-Covid strategy, data on Thursday showed retail sales fell more than expected in November, industrial output growth slowed and investment weakened.
And analysts warned there would not likely be any improvement this month.