A broad sell-off sent US stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the near future.

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

The S&P 500 lost 4.3 percent to 3,932 and the Nasdaq Composite lost 5.2 percent to 11,633. The Dow Jones Industrial Average fell 3.9 percent to 31,104.

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, Microsoft and Amazon 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 percent from 5.9 percent 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, 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. (Reuters)