The ultra-powerful US central bank made it clear it is getting closer to tapering support for the US economy, a sign that it is believes the worst of the crisis is past, but a worry for equity investors.
Around $120 billion a month has flooded into markets from the Fed, and minutes from a July meeting showed officials in agreement that it is time to begin reversing that policy.
That should mean that rates rise, and that bonds become more attractive compared to shares within a few short weeks.
Asian markets took the hint, all of them taking a hit.
Kay Van-Petersen at Saxo Capital Markets in Singapore said: "You can’t find a bull out there.”
The FTSE 100 sank 160 points to 7008, its lowest for about a month. It is still up by more than 440 points this year, however, good news for the many thousands of new investors lured to equities during lockdown.
Fund managers and commodity giants bore the brunt of the losses today, with M&G and Abrdn down 5%.
European markets fared no better. In Paris the Cac 40 was down 2.5%, with luxury retailers hit worst of all.
James Knightley, chief international economist at ING, says: “The minutes to the July FOMC meeting show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering. Officials have offered more vocal support in recent days to earlier action and we are pencilling in a September announcement, but it is clear that the Covid resurgence could delay it.”
St Louis Fed boss James Bullard said the Fed “should get going on the taper” as “the economy has adapted”, adding that “I don’t see the delta variant stopping that process”.
Oil prices fell for the sixth day running, with Brent crude at barely above $67, the lowest since May.
That reflects concern that fresh Covid cases could spark lockdowns, or at least a slowing of economic activity.
That boosted the dollar, up a touch to $1.36 against the pound, as it retains its safe-haven status regardless of American military or political misadventures.
With shares taking a bath, some in the City ask whether today’s fall is a blip or a sign of coming turbulence.
Russ Mould at AJ Bell said: “The question now is whether a volatile week is the prelude to the kind of late summer sell-off we have seen in previous years or if the market can regain its poise moving into the autumn.”
Economic growth seems likely to slow in the second half of the year.
As the US market opened for business, the Dow Jones fell 55 to 34,906. It has lost more than 600 points in the last week of trading.