Overseas markets were also lower Wednesday. Reuters data show a 28 percent chance for a hike after the Fed's December meeting.
Stocks were set to extend what has been its worst succession of down days since April, until inflation data was released.
Fawad Razaqzada of Forex.com told Reuters "the war of words between the leaders of the USA and North Korea continue to dominate investor sentiment".
"There's not a great incentive to buy big", said Lerner of SunTrust Advisory. Futures pointed to further declines on Wall Street, with S&P 500 futures down 0.3 percent at 2,465.70 and Dow futures falling 0.2 percent to 21,986.00. The Dow Jones industrial average fell 0.17 percent, with the tech-heavy Nasdaq composite index declining 0.28 percent.
The so-called fear gauge - the CBOE Volatility Index (VIX), the most widely followed barometer of expected United States stock market volatility, hit its highest since November 8, when Mr Trump was elected president.
The pan-European FTSEurofirst 300 index lost 1.19 per cent. In Asia, several indexes closed lower overnight.
The three major US indices have sold off this week amid investors' jitters after Trump said on Tuesday that threats from Pyongyang would be "met with fire and fury like the world has never seen".
"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.
U.S. stocks ended lower on Thursday, and Asian markets fell sharply, with Hong Kong's Hang Seng index dropping 2%.
USA stocks edged higher in early trading Friday, recouping some of the ground they lost after the market's biggest single-day drop in almost three months. Platinum also moved up 0.8% to $979.85, while palladium moved up a percentage point to $900.30.
The dollar was further weighed down on Friday by the soft USA inflation data.More news: DJ's Lawsuit Against Taylor Swift Dismissed
More news: Arsenal 4-3 Leicester: Should Arsenal's key equalising goal have stood?
More news: J&K: Security forces and terrorists exchange fire at Shopian's Awneera village
"It reinforces market concerns that inflation is perhaps just not picking up in the way the Fed had been expecting", said Osborne.
The dollar was down 0.77 percent against the yen JPY= at 109.21 yen.
"That did temporarily shake investors' complacency, but we think markets are ready to move higher in the back half of the year, and earnings and economic data are going to drive that". "But now, tensions climb rather than decrease", says Michael Currie, vice president, investment advisory at wealth Management TD.
The 30-year bond last rose 6/32 in price to yield 2.7847 percent, from 2.794 percent late on Thursday. USA gold futures gained 0.50 percent to $1,296.60 an ounce. It was on course for an over 5 percent weekly rise, its highest such gain since July 2016.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in United States crude inventories, leaving prices volatile. Brent crude, used to price global oils, added 21 cents to $52.91.
Investors have been dumping assets considered risky as U.S. President Donald Trump has escalated a war of words with North Korean leaders, saying on Thursday that perhaps his threat to unleash "fire and fury" on North Korea "maybe wasn't tough enough". Since the beginning of 2017, the barometer index of the S&P 500 had only two sessions of declines of 1 % or more.
The euro was 0.14 percent higher against the dollar.
The gap between Italian and German borrowing costs - a closely-followed measure of political tensions - reached its widest level in over three weeks on Friday. Gold, meanwhile, a traditional safe haven for investors, gained $26.50 since Monday, closing Thursday at $1291.20 per ounce.
The dollar was further weighed on Friday by the soft USA inflation data.
The Labor Department said consumer prices edged up 0.1% in July following no gain in June.