European and Asian shares were lower, reversing Monday's risk rally.
"There is a feeling that markets globally are gunning for a correction. It would be healthy and would take the 'twilight' concern out of the market as hedge fund managers scream about overvalue, bubbles and liquidity issues," wrote Evan Lucas, market strategist at IG.
(Read more: Trading the Fed taper: Avoid the dollar)
After weeks of speculation, the Fed is expected to announce that it will start tapering off asset purchases in September, cutting back from $85 billion per month to $70 billion to $75 billion. The FOMC meeting statement will be released on Wednesday afternoon followed by Fed Chairman Ben Bernanke's news conference.
"We continue to think that the FOMC (Federal Open Market Committee) will announce a reduction in those purchases on Wednesday," wrote analysts at Capital Economics.
"Given how far bond yields have risen in recent months in response to this prospect, we doubt that there would be a particularly adverse market reaction. Indeed, we wouldn't be surprised if yields fell back a bit more in the coming months. Nonetheless, we still think that yields will ultimately drift slowly up again over the next couple of years as the Fed gradually becomes less accommodative."
(Read more: Questions over Fed chief a bigger issue than taper)
Stocks rallied on Monday, boosted by news that Larry Summers had pulled out of the race to be the next head of the Federal Reserve. Summers' surprise decision bolstered risk appetite as investors had expected him to take a more hawkish course regarding stimulus than other candidates, if appointed.
On the economic front, consumer prices ticked up 0.1 percent in August as the cost of energy fell, according to the Labor Department. Economists polled by Reuters had expected a gain of 0.2 percent.
The National Association of Home Builders (NAHB) will report at 10 a.m. ET.
Pandora slumped after the Internet radio company proposed a follow-on offering of 10 million share for capital expenditures.
Intel rose after Credit Suisse raised its target price on the tech company to $30 from $28.
Outerwall plunged after the operator of video game and movie kiosks, formerly known as Coinstar, cut its current-quarter and full-year earnings and revenue estimates.
Among earnings, Adobe Systems is expected to post earnings after the closing bell.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
On Tap This Week:
TUESDAY: Housing market index, FOMC mtg begins; Earnings from Adobe Systems
WEDNESDAY: Mortgage applications, housing starts, oil inventories, FOMC mtg announcemnet, FOMC forecasts, Bernanke press conference, Apple iOS 7 available; Earnings from FedEx, General Mills, Oracle
THURSDAY: Jobless claims, current account, existing home sales, Philadelphia Fed survey, leading indicators, natural gas inventories, Fed's Pianalto speaks, Fed balance sheet/money supply, Microsoft analyst mtg, Nike shareholder mtg, weekly rail numbers; Earnings from ConAgra, Rite Aid
FRIDAY: Fed's George speaks, Fed's Bullard speaks, Fed's Kocherlakota speaks, quadruple witching, new iPhones in stores
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