An early market rally on Wall Street gave way to a broad slide for stocks and a surge in bond yields Wednesday after the Federal Reserve signaled it plans to begin raising interest rates “soon” to fight a spike in inflation that the central bank says is probably getting worse.

The S&P 500 fell 0.1% after having been up 2.2% earlier in the day. The Dow Jones Industrial Average fell 0.4% after swinging more than 900 points from its high for the day. The Nasdaq ended little changed, shedding most of a 3.4% gain.

Bond yields rose, including the yield on the 10-year Treasury note, which climbed to 1.87% from 1.78% late Tuesday. Yields affect rates on mortgages and other consumer loans.

In a statement issued after its latest policy meeting, the Fed said it “expects it will soon be appropriate” to raise rates. Such a move is expected to happen as soon as March, as half the Fed’s policymakers have expressed a willingness to raise rates by then. The Fed also said it would phase out its monthly bond purchases, which have been intended to lower longer-term rates, in March.

The major stock indexes initially rose after the 2 p.m. Eastern release of the Fed statement, but shed most of their gains as Fed Chair Jerome Powell took repeated questions about how and when the central bank will start letting its balance sheet shrink after buying trillions of dollars of bonds through the pandemic.

The selling accelerated as Powell acknowledged that the high inflation slamming the economy isn’t getting better, which could force the Fed to get even more aggressive about raising interest rates and removing the support it put in pace for markets.

Powell also said that there’s room to raise interest rates without hurting the labor market, and wouldn’t rule out the possibility that it could raise short-term interest rates at any one of its meetings this year or raise by a larger-than-usual amount at any one.

Those comments sent a signal to Wall Street that the Fed may be more hawkish when it comes to tackling inflation, said Willie Delwiche, investment strategist at All Star Charts.

The S&P slipped 6.52 points to 4,349.93. The Dow fell 129.64 points to 34,168.09. The Nasdaq rose 2.82 points to 13,542.12. The indexes are all on pace for weekly losses.

The market had been solidly higher prior to the release of the Fed statement following several days of volatile swings as investors try to gauge whether the Fed will succeed in its new effort to fight inflation. The central bank had been widely expected to continue drawing back its stimulus measures ahead of raising interest rates in the coming months.

Pressure from inflation on businesses and consumers is what is driving the Fed to raise interest rates this year. There was some concern on Wall Street that Powell could suggest that the central bank will raise interest rates this year more than the four times that most economists currently expect.

For nearly two years, investors had poured money into stocks, confident that the Federal Reserve would help keep share prices upright. With that support going away, markets have been hit with a bout of volatility. The S&P 500 is down 8.7% so far this year.

Markets rose following the Fed’s last policy meeting in mid-December. It wasn’t until three weeks later, in early January, that stocks turned jittery. That’s when minutes released from that meeting suggested Fed policymakers may be more zealous about fighting inflation through higher interest rates than many had been expecting.

Investors knew that higher rates were on the way, but the minutes showed that the Fed was likely to raise rates faster than in prior efforts to get rates back to normal. Perhaps more impactfully, the Fed also said it was likely to be quicker than in the past to reduce its huge holdings of bonds it had bought up through the pandemic to keep longer-term interest rates low. That would have a similar effect as additional rate increases.

Powell said Wednesday that policy makers have not set a timetable for when the Fed will start reducing its balance sheet and that the Fed sees short-term rates as the main lever it will use to adjust monetary policy. But he also acknowledged that the balance sheet is substantially larger than it needs to be and that the economy no longer needs to have such highly supportive action. That could lead the Fed to move sooner and faster in shrinking its balance sheet.

Many investors see a shrinking of the balance sheet as acting like even more rate increases, though the ultimate effect is still uncertain given how few times the Fed has tried something like this in history. The last time the Fed was raising rates and shrinking its balance sheet at the same time in late 2018, the S&P 500 lost nearly 20%.

“Chair Powell seems more confident than the market that the labor market can tolerate a number of rate hikes this year,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “The market has voted that he’s been tone deaf to some of the lingering economic problems.”

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