The Dow posted its biggest one-day percentage drop in 11 months - shedding nearly 1.4%, with the S&P 500 losing about the same. The Nasdaq plunged 1.8%.

A Labor Department report showed U.S. consumer prices increased more than economists had forecast in January amid a surge in the cost of rents.

But bumps along the way to the Fed's annual target rate of 2% inflation are to be expected, says George Cipolloni, portfolio manager at Penn Mutual Asset Management.

"I think the bump that we saw this month was relatively minor in the grand scheme of things. Inflation still heading in the right direction in terms of the downturn. [FLASH] I do think there are deflationary forces coming from China, for example. I do think a lot of the inflationary pressures that we felt through COVID are over at this point. So I still think we're heading in the right direction. It's just these little bumps that again, it contrasts with the expectations of a straight downward move in inflation. But in reality, everything doesn't move just in one direction."

Markets have rallied this year on bets that the Fed would start trimming rates in May. June now looks more likely.

In company news, shares of Lyft - down more than 2% at the close - skyrocketed after the bell when the ride-sharing company posted fourth quarter profit that beat estimates and said it would generate positive free cash flow this year for the first time ever.

JetBlue shares soared nearly 22% after activist investor Carl Icahn reported a nearly 10% stake in the airline, saying the carrier's stock is "undervalued."

Tripadvisor's stock jumped nearly 14% as the online travel agency formed a special committee to evaluate deal proposals.

And Nvidia ended the session with another milestone. Although shares closed down marginally, the chipmaker's market capitalization reached $1.78 trillion, eclipsing Amazon's and making it the fourth most valuable company in the world, behind Microsoft, Apple and Saudi state oil giant Aramco. Amazon, whose shares dipped more than 2%, slips to Number 5.