The AI selloff may be stealing the spotlight-but it's surging borrowing costs that pose a much bigger threat to stocks and other assets.

The 10-Year Treasury yield rose 4 basis points to 5.03% on Tuesday-on pace for its highest close since July 2007, per Dow Jones Market Data. It's added nearly 60 basis points over the past three months.

That sums up what investors are worried about right now. Their big fear is that the Federal Reserve will hike interest rates several times-rather than once or twice-by next summer.

Just look at how the odds have shifted.

Traders on Tuesday were pricing in a 31% probability that rates rise by 1 percentage point between now and June 2027, according to the CME FedWatch tool. The chances stood at just 3% a month ago.

Federal Reserve Chairman Kevin Warsh has mostly stayed quiet since assuming office in May, but now may have to tighten multiple times to curb a flare-up in inflation. President Donald Trump won't like that.

He won't be the only one. Fed tightening tends to be bad news for both stocks and bonds. S&P 500 futures fell 0.1% ahead of the open Tuesday, while Dow Jones Industrial Average futures fell 0.3% and Nasdaq-100 futures were down 0.1%.

The market's go-to safe havens could also struggle. Gold and cryptocurrencies were both falling on Tuesday, although the U.S. dollar looked set to extend a recent rally.

If the Fed's policy decision on Wednesday does mark the start of a rate-hiking cycle, then the recent wobble for chip and memory stocks would be the least of the market's worries.