While minutes from the US central bank's July meeting showed two decision-makers were against lifting borrowing costs, they also revealed that "most participants" saw a significant risk that price increases would persist and could require further monetary tightening.
The remarks dealt a blow to investors who had hoped rates were now at their peak following a string of data indicating inflation was falling and the jobs market softening.
And there also remains debate inside the Fed about the next move, with officials giving sharply differing views, though the bank has said it will make decisions based on incoming data.
Futures traders assign a probability of close to 90 percent that the Fed will stand pat at its September meeting, according to data from CME Group, though there is a growing belief that more hikes are coming down the line.
All three main indexes on Wall Street sank, with tech firms -- which are susceptible to higher rates -- acting as a major drag, while 10-year Treasury yields hit their highest level since 2008 at the height of the global financial crisis.
"The Fed has no choice but to keep it up until they are convinced that inflationary expectations are quashed," said Steve Sosnick of Interactive Brokers.
"Doing otherwise risks some of the embers reigniting. Even though two governors favoured keeping rates steady in July, it is important to keep in mind that a pause is not a pivot."
The dour mood in New York and Europe filtered through to Asia, where most major markets were deep in the red.
However, Hong Kong was flat and Shanghai saw small gains thanks to bargain-buying after a run of losses.
London, Paris and Frankfurt also retreated.
Bets on further hikes have pushed the dollar to an eight-month high versus the yen, raising the prospect of Japanese authorities intervening to support their currency.
The selling was intensified by worries about China as authorities struggle to revive a stuttering post-Covid recovery.
Fresh figures on Wednesday pointed to a second month of falling new home prices in China, underscoring deep problems in the property sector that observers fear could spill over into the domestic and global economy.
That came a day after news that growth in retail sales and industrial production had slowed.
Leaders this week pledged to boost consumption at home and lift the private sector, though there were no details. Similarly, promises of help for the property sector and other key areas of the economy have not been followed up with anything concrete.
"Investors looking for more aggressive support from policy makers amid soft activity have been disappointed as the recent incremental measures haven't been sufficient to restore confidence," said Taylor Nugent at National Australia Bank.
US officials have also raised concerns about a possible spillover of China's troubles, with Deputy Treasury Secretary Wally Adeyemo saying they were proving to be "a headwind -- not just to the US economy, but to the global economy".
That came after Treasury Secretary Janet Yellen said on Monday that Beijing's issues were a "risk factor" for the United States.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: DOWN 0.4 percent at 31,626.00 (close)
Hong Kong - Hang Seng Index: FLAT at 18,326.63 (close)
Shanghai - Composite: UP 0.4 percent at 3,163.74 (close)
London - FTSE 100: DOWN 0.5 percent at 7,321.81
Euro/dollar: UP at $1.0882 from $1.0880 on Wednesday
Pound/dollar: UP at $1.2739 from $1.2725
Euro/pound: DOWN at 85.42 pence from 85.48 pence
Dollar/yen: UP at 146.34 from 146.33 yen
West Texas Intermediate: UP 0.6 percent at $79.84 per barrel
Brent North Sea crude: UP 0.6 percent at $83.92 per barrel
New York - Dow: DOWN 0.5 percent at 34,765.74 (close)
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