Angst Reigns on Wall Street

If the decline in house prices occurs in the context of rising unemployment, "the risks could be significant," she said.

Over the weekend, Philadelphia Fed President Charles Plosser somewhat lowered expectations for a rate cut at the next Federal Open Market Committee meeting on Sept. 18 as he delivered a speech in Hawaii.

"Disruptions in financial markets can be addressed using the tools available to the Fed without necessarily having to make a shift in the overall direction of monetary policy," he said.

On Tuesday, Fed Chairman Ben Bernanke will speak in Germany about recent developments in the global financial system.

Most investors are looking for a reduction of at least 25 basis points in the fed funds target rate when the central bank meets next week.

"Investors will be listening for any indication that the Fed will move and is now focused more on the economy than inflation," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "Gross domestic product estimates for the third quarter are likely to be revised down from the current 2.6% consensus, especially in light of the recent data, but we are still a long way from calling this a recession."

During the prior session, the major averages tumbled after a government report showed that the domestic economy unexpectedly lost jobs in August. The Dow slumped 249.97 points, or 1.87%, to 13,113.38, and the S&P 500 fell 25 points, or 1.69%, to 1453.55. The Nasdaq sank 48.62 points, or 1.86%, to 2565.70.