The Dow Jones Industrials stumbled 313.45 points, or 1%, to conclude Tuesday at 30,706.23.
The S&P 500 retreated 43.96 points, or 1.1%, to 3,855.93.
The NASDAQ Composite let go of 109.97 points, or 1%, to 11,425.05.
Meanwhile, Ford shares slumped after announcing that supply chain issues would cost an extra $1 billion in the third quarter.
The Federal Open Markets Committee begins its September meeting on Tuesday, where central bankers are expected to announce a 0.75 percentage point rate hike on Wednesday.
Stocks have tumbled in recent weeks as comments from Fed Chair Jerome Powell and an unexpectedly hot August consumer price index report caused traders to prepare for even higher rates until inflation cools.
Housing market data released Tuesday showed an unexpected jump in starts for August, although building permits saw the biggest decline since April 2020.
Investors are focused on the Fed’s latest policy meeting slated to begin Tuesday. The central bank is expected to raise interest rates by another three-quarters of a point, though investors are also watching for guidance about corporate earnings before the next reporting season begins in October.
Treasury prices lost sharply, raising yields to 3.56% from Monday’s 3.49%. Treasury prices and yields move in opposite direction.
Oil prices slumped $1.54 to $84.19 U.S. a barrel.
Gold prices lost $4.30 to $1,673.90 U.S. an ounce.