All three major Wall Street indexes posted losses of more than 1% on Tuesday following the rise in the US 10-year treasury yield to a 16-year high.
The Dow Jones Industrial recorded its biggest daily percentage drop since March, seeing all three indexes close at their lowest levels in more than three months.
When the New York session closed, the Dow Jones Industrial index fell 1.14% to 33,618.89, while the S&P 500 fell 1.47% at 4,273.54 and the Nasdaq Composite also fell 1.51% to 14,545.83.
Meanwhile the US30 index also fell to around 33,696.5 during the Asian session.
Federal Reserve (Fed) policymaker Neel Kashkari said there is a strong possibility that interest rates will need to move significantly higher to reduce inflation.
This indirectly indicates that rates may rise higher next year amid a resilient United States economy.
Adding to investors' concerns is the potential for a government shutdown, with the United States Congress only having a few days left to reach an agreement.
Ratings agency Moody's warned that the government shutdown could hit the country's credit.
Looking at the share decline in more detail, Amazon fell 4% after the US Federal Trade Commission filed antitrust lawsuits against online retailers.
