Investors worry higher US rates could spark capital outflows and currency depreciation in emerging markets in Asia, causing financial turbulence.
Tech shares fell heavily. An index in Hong Kong tracking the largest Chinese technology companies sank nearly 5%.
The comment came after the central bank concluded its two-day meeting and indicated that “it will soon be appropriate to raise the target range for the federal funds rate,” with inflation well above 2% and a strong labor market.
The Fed also said it expects the unwinding of balance sheet to commence after it starts raising rates.
Expectations for higher US rates pushed a dollar index to the highest level in nearly a month. The DXY US Dollar Currency Index is up 0.7% to trade at 96.64.
“Outside of an exogenous growth shock there is little that would prevent the Fed from raising interest rates at its March meeting,” wrote Kerry Craig, global market strategist for JP Morgan Asset Management, in a note on Thursday.
The swift rotation by the Fed to quantitative tightening and withdrawal of liquidity will likely “add to market volatility over the course of the year,” he said.
The International Monetary Fund warned recently that emerging market and developing economies should prepare for possible turbulence in financial markets as the United States and Europe lift policy rates.