President Donald Trump has renewed criticism of the US central bank, blaming “crazy” interest rate rises for prompting steep stock market falls.
The S&P 500 was also down 3% while the tech-heavy Nasdaq lost 4%.
The slump followed falls across much of Europe while Asia responded to the US market moves by falling in similar fashion.
Japan’s Nikkei and the Hang Seng in Hong Kong were down by up to 4%.
There are a slew of worries for investors which have been building in recent weeks.
They include the US trade war with China and the potential impact on global growth while rising bond yields have diverted attention from equities – stocks – which have been offering the most attractive returns for years because central bank stimulus had flooded markets with cheap money.
Those programmes – such as quantitative easing – are now ending and the Fed has raised US interest rates three times already this year, raising borrowing costs, and could add a fourth hike by the end of 2018.
Strong economic data and a positive outlook from Fed officials have led to a sell-off in US Treasury bonds, particularly longer-term ones, sparking concerns about even higher interest rates.