U.S. stocks sink as Fed signals it will remain aggressive

Stocks fell broadly on Wall Street Thursday following the latest signal from the Federal Reserve that interest rates will need to go higher than previously expected in order to tame inflation.

The S&P 500 fell 2.2% as of 3:34 p.m. Eastern, with roughly 90% of stocks in the benchmark index in the red.

The Dow Jones Industrial Average fell 672 points, or 2%, to 33,294 and the Nasdaq fell 2.9%. The slide erased all the weekly gains for the major indexes.

Technology and communication services stocks led the market's sell-off. Microsoft fell 2.8% and Google parent Alphabet was down 4.3%.

Treasury yields mostly fell, reflecting increased worries on Wall Street that the economy is unlikely to avoid a recession as the Fed continues raising interest rates.

"The (stock) market's reaction is now factoring in a recession, and rejecting the possibility of the 'soft/softi s h' landing" that Fed Chair Jerome Powell raised in a speech last month, said Quincy Krosby, chief global strategist for LPL Financial.

The Fed raised its short-term interest rate by half a percentage point on Wednesday, its seventh increase this year. Central banks in Europe followed along Thursday, with the European Central Bank, Bank of England and Swiss National Bank each raising their main lending rate by a half-point Thursday. European stocks fell sharply, with Germany's DAX dropping 3.3%.

Although the Fed is slowing the pace of its rate increases, the central bank signaled it expects rates to be higher over the coming few years than it had previously anticipated. That disappointed investors who hoped recent signs that inflation is easing somewhat would persuade the Fed to take some pressure off the brakes it's applying to the U.S. economy.

The federal funds rate stands at a range of 4.25% to 4.5%, the highest level in 15 years.

Fed policymakers forecast that the central bank's rate will reach a range of 5% to 5.25% by the end of 2023.

Their forecast doesn't call for a rate cut before 2024.

The yield on the two-year Treasury, which closely tracks expectations for Fed moves, rose to 4.26% from 4.21% late Wednesday.

The yield on the 10-year Treasury, which influences mortgage rates, slipped to 3.45% from 3.48%.