Stock markets retreated Friday as US retail sales and bank earnings disappointed and investors worried the Fed may hike interest rates aggressively.
A pledge by Fed chief Jerome Powell earlier this week to rein in surging prices while also nurturing recovery in the world's top economy provided a much-needed lift to investor sentiment and helped propel a rally across equities.
Data showing US inflation appeared to be stabilising added to the positivity and tempered fears about the end of the ultra-loose monetary policies, which have been key to a near two-year markets rally and global economic rebound.
But the mood darkened Thursday after the officials' comments.
Lael Brainard, in her Senate hearing to become Powell's deputy, said rates could rise as early as March, a move supported by Fed Bank of Philadelphia chief Patrick Harker, who also raised the possibility of another three before the end of the year.
The heads of the Chicago and St Louis Feds saw a similar number of hikes, while Raphael Bostic of Atlanta was open to a March move.
Minutes from the bank's December policy meeting showed officials were keen to act quickly to tame prices, and speed up the taper of its massive bond-buying programme, then begin offloading its Treasury holdings -- measures that have been used to keep rates at all-time lows.
"The possibility of four rate hikes this year is growing," said Oanda senior market analyst Edward Moya.
"With four (policy board) voters now expecting to hike in March, financial markets can't rule out it is possible that they could deliver five rate hikes this year."
The comments helped lead to steep losses across Wall Street Thursday, with the Nasdaq dropping more than two percent, as tech firms are more susceptible to higher borrowing costs.
The selling continued on Friday in Asia and Europe, where official data showed Germany's economy grew modestly last year and likely shrank in the final months.
Wall Street fell further Friday with a lacklustre set of bank earnings failing to help sentiment.
Shares in JPMorgan Chase were 5.3 percent lower after the bank reported a 14 percent drop in fourth quarter profits amid higher costs for employee compensation.
Sentiment was also hit by data showing retail sales dropped 1.9 percent month-on-month in December.
"The key takeaway from the report is that total retail sales, which are not adjusted for inflation, contracted at their fastest pace since last February in the face of broadly higher prices," said Patrick O'Hare at Briefing.com.
"This suggests that inflation is weighing down consumer spending," he added.
Meanwhile, oil prices hit the highest levels for more than two months.
"Crude oil prices have continued to look resilient with concerns about geopolitical risk and a Russian incursion into Ukraine raising the stakes, as well as keeping a floor under prices," said Michael Hewson at CMC Markets.
"With some OPEC+ members already struggling to lift production to meet the new output targets, concern over supply shortfalls has been growing," he added.
- Key figures around 1630 GMT -
New York - DOW: DOWN 1.0 percent at 35,752.35 points
EURO STOXX 50: DOWN 1.0 percent at 4,271.96
London - FTSE 100: DOWN 0.3 percent at 7,542.95 (close)
Frankfurt - DAX: DOWN 1. percent at 15,883.24 (close)
Paris - CAC 40: DOWN 0.8 percent at 7,143.00 (close)
Tokyo - Nikkei 225: DOWN 1.3 percent at 28,124.28 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 24,383.32 (close)
Shanghai - Composite: DOWN 1.0 percent at 3,521.26 (close)
Euro/dollar: DOWN at $1.1423 from $1.1469 late Thursday
Pound/dollar: DOWN at $1.3676 from $1.3704
Euro/pound: UP at 83.53 pence from 83.50 pence
Dollar/yen: DOWN at 113.83 yen from 114.16 yen
Brent North Sea crude: UP 1.1 percent at $85.42 per barrel
West Texas Intermediate: UP 1.3 percent at $83.15 per barrel