While the Ukraine war continues to cast a shadow across trading floors, Fed monetary policy is at the top of the agenda this week as investors fret over how quickly officials will withdraw their vast pandemic-era financial support.
After last month’s 0.25 percentage point hike in interest rates, the focus is now on its plans for May’s meeting, with expectations growing that it will announce a 0.50 point lift followed by several more before the end of the year.
Fed governor Lael Brainard, who is considered a dove, on Tuesday spooked traders by saying bringing inflation down from 40-year highs was of "paramount importance" and that the bank was "prepared to take stronger action" if warranted.
Brainard, who is awaiting congressional confirmation for the position of Fed vice chair, also said bank policymakers were ready to start reducing its vast bond holdings, which have helped keep borrowing costs down.
"The market might have been looking for... Brainard to at least give more balanced remarks -- instead, they were at the hawkish end of the spectrum from someone like Brainard," said Stephen Innes of SPI Asset Management.
Minutes from the Fed’s March meeting will be released later in the day and will be pored over for insights into officials’ thinking in light of the war and recent data suggesting the world’s top economy remains resilient for now.
All three main indexes on Wall Street ended in the red, with the Nasdaq off more than two percent owing to tech firms being more susceptible to higher rates.
And the selling seeped through to Asia, where Hong Kong, Shanghai and Taipei dropped on their return from a break.
Tokyo, Sydney, Seoul, Singapore, Manila, Jakarta and Wellington also retreated.
"Liquidity remains poor, and no one seems willing to take the other side as air pockets are becoming easier to find these days," Innes added.
The European Union’s decision not to include Russian oil in a fresh round of sanctions saw both main contracts drop Tuesday and extend losses in early Asian business.
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