Wall Street Falls Sharply As Inflation Data Fuels Jitters

All three major U.S. stock indexes were down at least 2% in Friday afternoon trading as a steeper-than-expected rise in U.S. consumer prices in May fueled investor worries about more aggressive interest rate hikes by the Federal Reserve.

Growth stocks led the decline, with Microsoft Corp and Apple Inc the biggest weights on the S&P 500 and Nasdaq.

Benchmark 10-year U.S. Treasury yields reached 3.152%, the highest since May 9 following the inflation report.

The Labor Department's report showed the consumer price index increased 1.0% last month after gaining 0.3% in April. Economists polled by Reuters had forecast the monthly CPI picking up 0.7%.

Year-on-year, CPI surged 8.6%, its biggest gain since 1981 and following an 8.3% jump in May.

Stocks have been volatile this year, and recent selling has largely been tied to uncertainty over the outlook for inflation and rates.

"Inflation this past month was certainly hotter than expected and a reminder that inflation will be with us for longer than we previously expected," said Michael Sheldon, chief investment officer at RDM Financial Group at Hightower in Westport, Connecticut.

"But there are some signs within the economy that ultimately inflation should start to slow, and the Fed will likely do whatever it takes to keep raising rates and reduce inflation over the coming 12 to 18 months."

The Dow Jones Industrial Average fell 658.3 points, or 2.04%, to 31,614.49; the S&P 500 lost 91.06 points, or 2.27%, to 3,926.76; and the Nasdaq Composite dropped 342.63 points, or 2.91%, to 11,411.60.

All three major indexes are expected to be down for the week as well.

Goldman Sachs said on Friday that it now expects the Fed to hike rates by 50 basis points in September, up from its previous expectation of a 25 basis point increase.

Netflix Inc slid 4.5% after Goldman downgraded the streaming giant's stock to "sell" from "neutral" due to a possibly weaker macro environment.

Declining issues outnumbered advancing ones on the NYSE by a 6.46-to-1 ratio; on Nasdaq, a 4.38-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 44 new lows; the Nasdaq Composite recorded 13 new highs and 308 new lows.