All three major U.S. stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops in over two years.

Surging risk-off sentiment pulled every major sector deep into negative territory, with interest-rate-sensitive tech and tech-adjacent market leaders, led by Apple Inc, Microsoft Corp and Amazon.com Inc weighing heaviest.

"(The sell-off) is not a surprise given the rally running up to the data," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

The Labor Department's consumer price index (CPI) came in above consensus, interrupting a cooling trend and throwing cold water on hopes that the Federal Reserve could relent after September and ease up on its interest rate hikes.

Core CPI, which strips out volatile food and energy prices, increased more than expected, rising to 6.3% from 5.9% in July.

The report points to "very persistent inflation and that means the Fed is going to remain engaged and raise rates," Nolte added. "And that’s an anathema to equities."

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC's policy meeting next week, with an 18% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME's FedWatch tool.

"The Fed has increased (interest rates) by three full percentage points in the last six months," Nolte said. "We have not yet felt the full impact of all those increases. But we will feel it."

"We are at recession’s doorstep."

Worries persist that a prolonged period of policy tightening from the Fed could tip the economy over the brink of recession.

The inversion of yields on two- and 10-year Treasury notes, regarded as a red flag of impending recession, widened further.

According to preliminary data, the S&P 500 lost 177.72 points, or 4.32%, to end at 3,932.69 points, while the Nasdaq Composite lost 631.41 points, or 5.16%, to 11,635.01. The Dow Jones Industrial Average fell 1,285.66 points, or 3.97%, to 31,095.68.

All 11 of the major sectors in the S&P 500 ended the session deep in red territory, with communications services, consumer discretionary, tech and the tech subset semiconductor sector suffering steeper drops than the broader market.