The Dow Jones Industrial Average lost 280.70 points, or 0.80 percent, to 34,641.18. The S&P 500 fell 57.52 points, or 1.26 percent, to 4,525.12. The Nasdaq Composite Index shed 328.38 points, or 2.26 percent, to 14,204.17.
Seven of the 11 primary S&P 500 sectors ended in red, with consumer discretionary and technology down 2.35 percent and 2.19 percent, respectively, leading the laggards. Utilities rose 0.67 percent, the best-performing group.
U.S.-listed Chinese companies traded lower with all the top 10 stocks by weight in the S&P U.S. Listed China 50 index ending the day on a downbeat note.
Fed Governor Lael Brainard on Tuesday said she expects rapid reductions to the Fed's balance sheet alongside increases to the benchmark interest rate to drive down inflation.
"It is of paramount importance to get inflation down," Brainard said, adding the Fed will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon its May meeting.
The U.S. central bank is due to release on Wednesday the minutes of its March meeting.
At its policy meeting last month, the Fed raised interest rates for the first time since 2018 and indicated multiple rate hikes were ahead this year.
On the economic front, the Institute for Supply Management reported Tuesday that U.S. Services PMI (Purchasing Managers' Index) rose to 58.3 percent in March from the February reading of 56.5 percent. The report showed that demand for services remained strong, but supply chains continue to restrict services sector capacity.
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