Stocks are trading in red during the morning session on Wall Street Wednesday after a highly anticipated report on inflation turned out to be even worse than expected.

The S&P 500 was 43.07 points or 1.13% down to 3,775.73 in early trading. The Dow Jones Industrial Average fell 359.37 points or 1.06% to 30,621.96 as of 10:10 a.m. Eastern time. The Nasdaq Composite was 133.08 points or 1.18% down to 11,131.65. Treasury yields jumped as expectations built for the Federal Reserve to hike interest rates drastically to slow the nation’s soaring inflation.

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Inflation and the Federal Reserve’s reaction to it have been at the center of Wall Street’s sell-off this year. Wednesday’s discouraging figures showed that inflation is only still very high, it’s getting worse.

Consumer price index (CPI) inflation was 9.1% higher in June than a year earlier, increasing from May’s 8.6% inflation level. That also exceeded the economists’ expectations of 8.8%.

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The Federal Reserve’s key 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, investors now see it as a lock that the Fed will raise its key overnight interest rate by at least 0.75% at its meeting in two weeks.

That would match its most recent hike, which was the biggest since 1994. An increasing number of traders are even suggesting the Fed will go for a monster hike of 1%.

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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 raises interest rates too aggressively, it could lead to a recession.

“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.

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

In the bond market, yields jumped as expectations increased for an even more aggressive Fed. The two-year Treasury yield, which tends to closely follow expectations for Fed action, increased to 3.16% from 3.05% late Tuesday.

It remains above the 10-year Treasury yield, which rose to 3.02%. This is an unusual event and some investors see it as an ominous signal of a potential recession.

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The inflation data also sent immediate shocks into stock markets across Europe and for gold, with prices for all of them weakening after the report’s release.

Even with the moves, Wall Street’s reaction was slightly muted than it was following the last inflation report. Last month, the reading on the consumer price index or CPI, showed an unexpected acceleration in inflation. That raised hopes among some investors that inflation was peaking and it sent the S&P 500 down 2.9%.

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Since then, some sectors of the economy have already slowed as a result of inflation and the Fed’s actions combating it, particularly the housing market. Prices for oil and other commodities have also regressed as concerns about a recession pull down expectations for demand.

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“While some will draw parallels with the shockingly bad May CPI report, the backdrop is markedly different — commodity prices have fallen sharply and we’ve seen clearer signs of an economic slowdown, both of which will contribute to weaker price pressures ahead,” said Michael Pearce, senior US economist with Capital Economics.