There was a disappointing start to the corporate earnings season and growing concern about Russia's troop build-up on Ukraine's border and warnings of a possible invasion that dragged on sentiment.
After spending much of last year playing down the spike in prices, the US central bank has taken a hawkish turn on monetary policy in recent months as officials try to bring inflation under control, which is at a four-decade high.
Minutes from the most recent meeting indicate that it will begin lowering interest rates from March with three or possibly four more hikes before the end of the year. On top of that, it plans to offload its vast bond holdings.
The move to battle runaway prices is seen as crucial, but the end of the era of ultra-cheap cash for investors has rattled markets after almost two years of uninterrupted gains to record or multi-month highs.
The Fed gathering that starts later in the day is all the attention with investors poring over every word from the bank's statement and boss Jerome Powell's subsequent news conference.
The Fed is trying to control inflation, and markets have gone from expecting a gradual interest rate hiking cycle to an accelerated tightening action until inflation falls, according to Edward Moya, the president of OANDA.
Some economists think that the Fed needs a half-point rate increase in March to show that they are serious about tackling inflation and that more are coming. He said officials need to send a message that they are tackling inflation, but they don't need to overcommit themselves. The Fed's best option is to signal that they will raise rates by 25 basis points in March and signal another one is coming in May. Inflation may show its peak around then and may not need to be as aggressive going forward. Wall Street's three main indexes have had a rough time, with the Nasdaq down more than 10 percent from recent peaks, putting it in correction territory.
They saw some wild gyrations, suffering intra-day losses on Monday before dip-buying saw them all surge in positive territory in the last hour. London, Paris and Frankfurt sank, without any recovery.
Lori Calvasina, at RBC Capital Markets, told Bloomberg Television that Volatility is back. We're having a sea change in terms of Fed policy. Equity investors are behind the curve in anticipating what's coming, so there's a lot of catch-up to do. Asia started Tuesday well in the red, with Tokyo down two percent, while Hong Kong, Singapore and Taipei were off more than one percent.
Sydney shed more than two percent after higher than expected Australian inflation figures ramped up bets on a hike by the country's central bank. Seoul fell more than two percent, with Shanghai, Wellington and Jakarta down.
Many people warn of more near-term upheaval, because there is a consensus that the long-term outlook for markets remains positive, thanks to reopenings, vaccine programmes and the less severe Omicron variant.
Jeremy Siegel, at the Wharton School of the University of Pennsylvania and author of Stocks for the Long Run, said he was very positive on long-term equities, but I think it will be in for a rocky time the next two or three months.
We have to get used to the fact that the Fed is going to be more hawkish. Dollar yen: DOWN at 113.80 yen from 113.98 yen late Monday.
The euro pound is up to 83.96 pence from 83.94 pence.
West Texas Intermediate: UP 0.3 percent at $83.58 per barrel.
Brent crude for the North Sea was UP 0.5 percent at $86.69 per barrel.
New York - Dow: UP 0.3 percent at 34,364.