Stocks are falling on Wall Street after a highly anticipated report on inflation turned out to be even worse than expected. The S&P 500 was 1.1% lower in early trading Wednesday, and Treasury yields jumped as expectations built for the Federal Reserve to hike interest rates drastically at its meeting later this month in an effort to slow skyrocketing inflation.

The Dow was down 1.8%. Technology stocks and other winners of the early days of the pandemic were again among the biggest losers. The Nasdaq was 1.2% lower, and its loss of 29% for the year is nearly double the Dow’s.

June CPI inflation report 
Inflation and the Federal Reserve’s response to it have been at the center of Wall Street’s sell-off this year. Wednesday’s discouraging data showed that inflation is not only still very high, but it’s also getting worse. Prices at the consumer level were 9.1% higher last month than a year earlier, accelerating from May’s 8.6% inflation level. That also was worse than economists’ expectations of 8.8%.

The Fed’s main tool to combat inflation is to raise short-term interest rates, which it has already done three times this year. After Wednesday’s inflation report, traders now see it as a lock that the Federal Reserve will hike its key overnight interest rate by at least three-quarters of a percentage point at its meeting in two weeks.

That would match its most recent increase, which was the biggest since 1994. A growing number of traders are even suggesting the Fed will go for a monster hike of a full percentage point.

Traders are betting on a 37% chance of that, up from zero a month ago, according to CME Group. The risk is that rate hikes are a notoriously blunt tool, one that takes a long time for its full effects to be felt. If the Fed ends up too aggressive with them, it could cause a recession. In the meantime, higher rates also push down on prices of all kinds of investments.

“Shock and awe from the Fed might cause a lot of collateral damage to the economy without really providing near-term inflation relief,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

“The Fed probably needs to temper people’s expectations about what they can do,” he said.

Russia’s invasion of Ukraine has exacerbated the problem, pushing up prices of oil and other commodities. Global manufacturing supply chains were disrupted by Chinese efforts to contain virus outbreaks that temporarily shut down Shanghai and other industrial centers.