The index dropped more than 500 points. That's on top of the fall earlier this month that marked the biggest one-day decline since June 2020.
Trading has been volatile in recent weeks, as inflation remains stubbornly high, and has caused jittery investors to worry that continued Fed rate hikes could trigger a rapid increase in unemployment, possibly by year's end.
The Nasdaq fell 1.79 percent, and the tech-heavy index went down a whopping 29 percent year to date, on the worst inflation in 40 years.
Indeed, many tech startups and young tech firms rely on a steady flow of cash investment, and rising interest rates make borrowing and capital investment much more difficult.
The nation's record inflation is due mostly to the current administration's profligate spending, and the Fed's slow reaction to contain inflation, economists said, with high energy prices also contributing to the problem.
In a press conference at the conclusion of a two-day meeting ended Wednesday, Fed chief Jerome Powell vowed the bank would kill inflation.
The statement came after the central bank raised interest rates by 75 basis points.
The rate hike marked the third consecutive time this year for such a boost, and foreshadowed more aggressive increases than investors had predicted.
"We have got to get inflation behind us. I wish there were a painless way to do that. There isn't," Powell told reporters at a press conference Wednesday afternoon.
"Higher interest rates, slower growth and a softening labor market are all painful for the public that we serve. But they're not as painful as failing to restore price stability and having to come back and do it down the road again," he said.
Critics, however, blasted the move.
Desmond Lachman, resident fellow at the American Enterprise Institute, told Xinhua: "It seems that the Fed is unnecessarily risking the attainment of its employment objective by pursuing an overly aggressive monetary policy to regain control over inflation."
Not only has the Fed now raised interest rates in 75 basis point steps for the third time and clearly signaled that interest rates will stay higher for longer. It is also now withdrawing market liquidity at the unprecedented rate of 95 billion U.S. dollars a month, said Lachman, a former International Monetary Fund official.
One reason to fear a full-blown economic recession is the acute difficulties already being experienced in the housing market, Lachman said.
Another reason for concern is that the Fed's hawkish monetary policy stance has already caused the bursting of the equity and credit market bubble, Lachman said.
In addition, by causing a surge in the dollar and the repatriation of capital from the emerging markets, it is compounding an already very troubled world economy, Lachman said.
He believes that the Fed might have been better served by a 50-basis-point interest rate hike today and by waiting to see the lagged impact of its monetary policy tightening to date.
Aside from bad news about inflation, recent warnings from major shipping firm FedEx have spooked investors.
The company's stock on Friday lost more than 21 percent after a disappointing earnings report that came in well below consensus estimates.
In an interview Thursday on CNBC, FedEx CEO Raj Subramaniam was asked if his company's slowdown signaled the start of a worldwide recession.
"I think so," he responded. "These numbers, they don't portend very well."
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