The Dow Jones Industrial Average fell 414.23 points, or 1.81 percent, to 22,445.37, the S&P 500 lost 50.84 points, or 2.06 percent, to 2,416.58 and the Nasdaq Composite dropped 195.41 points, or 2.99 percent, to 6,333.00.
The S&P 500 index slumped 39.54 points, or 1.6 percent, to 2,467.42. The benchmark S&P 500 index is in what Wall Street calls a correction, and is headed toward a bear market, threatening to end the more than 9-year US bull market run.
An immediate sell-off followed the announcement, with the Dow falling by more than 500 points during Fed Chairman Jerome Powell's press conference.
"Nasdaq is your more growth-oriented story, so the biggest stocks are driving the overall market because they're a bigger chunk of it", said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh.
The major U.S. stocks indexes accelerated declines in the last hour of trading after White House trade adviser Peter Navarro said the United States and China might not reach a trade deal at the close of a 90-day negotiating window unless Beijing can agree to a profound overhaul of its economic policies.
Stocks are opening higher on Wall Street as the market steadies following two days of steep drops.
The Dow Jones tumbled more than 400 points in a rough week as investors grew skittish following the Federal Reserve's decision to enact a rate hike as lawmakers work to avert a possible shutdown. Relative to their size, they also tend to carry more debt than larger companies, which could be a problem in a slower economy with higher interest rates. The Nasdaq suffered a 3 per cent fall to 6,332.99, taking it more than 20 per cent off its record high in August.
The last bear market for the S&P 500 ran from October 9, 2007 through March 9, 2009.
The dollar index rose 0.76 percent, with the euro down 0.74 percent to $1.1359.
On average, bear markets have lasted 14 months in the period since World War II, while market corrections have lasted an average of five months.
The S&P 500 lost 183.33 points, or 7.1 percent. Add Stock Market as an interest to stay up to date on the latest Stock Market news, video, and analysis from ABC News.
It is the biggest weekly percentage drop since August 2011 while the Nasdaq's 8.36% decline is the sharpest since November 2008. For the last three years the Fed told investors weeks in advance that it was nearly certain to increase rates.