Stocks fell sharply in early trading on Wall Street Thursday and Treasury yields surged after more hints from the Federal Reserve that it may need to hike interest rates much higher than many people expect to get inflation under control.

The S&P 500 fell 45.82 points or 1.16% to 3,912.97. The Dow Jones Industrial Average fell 240.49 or 0.72% to 33,313.34. The Nasdaq Composite fell 116.68 points or 1.04% to 11,066.98.

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Bond yields increased and hovered close to their highest levels in decades. The yield on the two-year Treasury note surged to 4.45% from 4.37% late Wednesday. The yield on the 10-year Treasury surged to 3.79% from 3.69% late Wednesday.

The Fed has been increasing interest rates aggressively to control inflation by slowing the economy. Traders have been expecting that more signs of easing inflation could help the central bank shift to less aggressive rate hikes.

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However, the central bank has been clear about its intent to keep raising rates, possibly to unexpectedly high levels, to control inflation. James Bullard, head of the Federal Reserve Bank of St Louis, reassured that position in a presentation on Thursday.

The Fed has already hiked its short-term interest rate to a range of 3.75% to 4%, up from nearly zero as recently as last March. Bullard that the rate may have to increase to a level between 5% and 7% to curb stubbornly hot inflation.

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This comes after reports showing that inflation is easing slightly, but remains extremely hot as consumers continue spending amid a very strong jobs market. Strong spending and employment remain a potential guard against the economy slipping into a recession. Fed is likely to remain aggressive and raise the risk that it will hit the brakes hard enough on the economy to bring on a recession.

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Additionally, the market is also concerned about the Russia-Ukraine war and lockdowns in China hurting the global economy. The war has been weighing on the energy sector and any worsening could cause spikes in prices for oil, gas, and other commodities that the region produces. US oil prices increased by 2.1%

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China’s “zero-COVID” policy has caused a supply crunch for some of Asia’s biggest manufacturers, denting economic growth. Markets in Asia and Europe also witnessed losses.