With officials from the United States to Switzerland warning that more tightening will be needed, eyes turn to Tokyo, where the Bank of Japan is due to hold its latest meeting with speculation swirling that it is considering moving away from its ultra-loose policies.
Equities have had a rough ride this week, with the Fed's closely watched "dot plot" guide on rates indicating it could announce another increase before the end of the year, while cutting less than initially hoped next year.
Those expectations were solidified Thursday with data showing US applications for US unemployment benefits fell to the lowest level since January last week, pointing to a still strong labour market.
Ian Lyngen at BMO Capital Markets said the reading "marginally increases the chances the Fed hikes in November and certainly reinforces the Fed's messaging regarding avoiding cuts as long as possible in 2024".
Bets on further tightening also pushed 10-year Treasury yields to a 16-year high.
In a sign that the spectre of inflation will linger for some time, central banks in Sweden, Norway and Switzerland all warned they would likely have to hike again at some point owing to sticky inflation.
While Fed decision-makers contemplate their next move, former St. Louis Fed boss James Bullard said they might have to keep raising to avoid a reaccelleration of inflation, which is still well above the bank's two percent target.
And former Treasury Secretary Lawrence Summers suggested officials were being overly optimistic on their economic outlook, adding they could be surprised by the pace of inflation while growth could slow more than expected.
A number of policymakers have said they were confident the United States can avoid recession even as they push rates to two-decade highs.
The prospect of borrowing costs staying higher for longer jolted equity markets, with all three main indexes on Wall Street ending more than one percent down, while Paris and Frankfurt were also deep in the red.
In Asia, Tokyo, Sydney, Seoul, Singapore, Taipei and Wellington all fell, though Hong Kong and Shanghai enjoyed a much-needed bounce on bargain-buying.
The Bank of Japan is forecast to maintain Friday its negative rates policy and continue with yield curve control, in which it maintains a tight band in which bonds can move.
However, traders are hoping for some guidance from Governor Kazuo Ueda on officials' plans for the future, with inflation still elevated -- data Friday showed it came in higher than expected in August.
The meeting comes after Tokyo said it was keeping a close eye on forex markets after the yen sank to a fresh 10-month low against the dollar owing to the bank's refusal to move away from its soft policy even as the Fed tightens.
- Key figures around 0230 GMT -
Tokyo - Nikkei 225: DOWN 0.9 percent at 32,287.46 (break)
Hong Kong - Hang Seng Index: UP 0.6 percent at 17,760.12
Shanghai - Composite: UP 0.3 percent at 3,094.85
Dollar/yen: UP at 147.70 yen from 147.57 yen on Thursday
Euro/dollar: DOWN at $1.0648 from $1.0661
Pound/dollar: DOWN at $1.2281 from $1.2292
Euro/pound: DOWN at 86.68 pence from 86.71 pence
West Texas Intermediate: UP 0.5 percent at $90.08 per barrel
Brent North Sea crude: UP 0.4 percent at $93.70 per barrel
New York - Dow: DOWN 1.1 percent at 34,070.42 (close)
London - FTSE 100: DOWN 0.7 percent at 7,678.62 (close)
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