Wall Street recoiled Friday, after the head of the Federal Reserve delivered a stern warning that the central bank’s campaign to lower inflation by raising interest rates is “unconditional” even if it leads to pain for households, businesses and, in turn, stock prices.

The S&P 500 fell 3.4%, its worst daily showing since mid-June, taking its losses for the week to 4%. The slump was broad, with every sector of the index lower.

Bond investors also quickly adjusted for more rate increases from the Fed, with the two-year Treasury yield, which is sensitive to rising interest rates, moving close to its highest level of the year at 3.44%, before easing back to 3.38%.

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Jerome Powell, the Fed chair, said during a speech at the Kansas City Fed’s annual conference in Wyoming. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

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The central bank is grappling with the task of guiding the U.S. economy out of a pandemic, at a time when pent-up demand, broken supply chains and soaring energy costs have helped propel the fastest pace of price increases in a generation. The central bank is expected to raise interest rates to their highest level since 2008 when officials meet in September, increasing borrowing costs for consumers and companies, and cooling the economy.

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Investors had expected Powell to caution that the central bank’s task of fighting inflation was far from complete, after a host of other Fed officials had communicated a similar message in recent weeks. In anticipation, they pulled nearly $1 billion from funds that invest in U.S. stocks for the week through Wednesday, according to data from EPFR Global. Funds that buy low-rated bonds, known as junk bonds, saw more than $4 billion of withdrawals.

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Still, the clarity of Powell’s comments Friday removed any uncertainty about his intentions to make economic conditions more restrictive, said Lee Ferridge, head of macro strategy for North America at State Street Global Markets.

“This was not the Powell we normally see where he tries to be more balanced,” Ferridge said. “I don’t see how you could take what he said any other way.”

Such caution reflects a marked change of sentiment on Wall Street, where trading in July and early August had been defined by a roaring market rebound, in part predicated on the idea that the Fed was about to start easing off its aggressive campaign to raise interest rates. After plunging more than 23% for the year through mid-June, the S&P 500 rallied more than 17% over the next two months.

Powell’s remarks offered the strongest case yet that investors had gotten ahead of themselves. After Friday’s market moves, the index remains about 15% lower for the year.

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“Our responsibility to deliver price stability is unconditional,” Powell said.

Some continue to question Powell’s conviction. The central bank has stepped in to support financial markets on numerous occasions since the 2008 financial crisis. Andrew Brenner, head of international fixed income at National Alliance Securities, suggested that the Fed might come to investors’ rescue again if its decision to maintain an extended period of higher interest rates damages the economy.

“I continue to not believe him,” Brenner said.

Trading in some corners of the financial markets offered signs that Brenner is not alone in thinking the Fed may end up easing its campaign. Investors continue to bet on the Fed cutting interest rates next year, contrary to the central bank’s own predictions.

Futures prices that forecast the path of Fed interest rate increases rise through to June before falling through the second half of next year. The Fed’s policymakers’ median prediction has rates remaining elevated until 2024.

Investors took some relief from a fresh inflation report Friday, which showed that the pace of price increases in the United States continues to moderate, with some investors viewing the numbers as limiting the need for further Fed action. A second data set showed a decline in future expectations for the rate of inflation.

Attention will now turn to the government’s monthly update on the labor market that is due next week, with focus on any sign that hiring and unemployment are worsening. So far, despite some expectations that higher borrowing costs would eventually slow hiring, employers in the United States have continued to add jobs, and the unemployment rate has matched its 50-year low.

“I believe once Powell starts to see unemployment pick up, he will shy away,” Brenner said.

The backdrop sets up a month ahead that already sits uncomfortably in investors’ psyche. Seasonally, September is the worst month for the S&P 500, according to index analyst Howard Silverblatt.

“It’s a challenging few weeks ahead,” Ferridge said. “The Fed has talked about causing pain, and now markets have to react. It’s hard to make a positive case for equities after this.”