Wall Street slumps, erasing a big rally

NEW YORK (AP) — Stocks are slumping on Wall Street, erasing a rally from a day earlier, as markets assess the looming fallout from the Federal Reserve's stepped-up fight against inflation.

On Wednesday, the Fed raised its benchmark interest rate by half a percentage point as part of an effort to slow consumer borrowing and tamp down inflation, which is at a four-decade high. The market rallied when Fed Chair Jerome Powell dismissed the possibility the Fed could resort to a more aggressive three-quarters point hike in the future.

Now, traders are starting to fret more about the impact of the Fed's moves to dampen demand and slow the economy.

"The Fed is between a rock and a hard place, and because of instant information investors are experiencing both fear and greed at the exact same moment," said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 was down 3.1% as of 12:43 p.m. Eastern, with more than 95% of the companies in the benchmark index in the red. The Dow Jones Industrial average stumbled 926 points, or 2.7%, to 33,131 and the Nasdaq lost 4.3%.

Bond yields resumed their upward march. The yield on the 10-year Treasury rose sharply, to 3.09%, from 2.92% a day earlier.

The Fed's aggressive shift to raise interest rates has investors worrying about whether it can pull off the delicate dance to slow the economy enough to halt high inflation but not so much as to cause a downturn. The pace and size of interest rate increases is being scrutinized closely on Wall Street.

"Investors realized that by the Fed continuing to take a very measured approach, it could actually allow inflation to remain out of control," Stovall said.