Dow Jones falls 400 points after Fed official sees rate hikes in 2022

St. Louis Federal Reserve President James Bullard said he expects the first interest rate increase the Fed could make could come as soon as 2022

The Dow fell 1% on Friday after Federal Reserve official James Bullard said inflation was stronger than anticipated and it would take the central bank several meetings to figure out how to pare back stimulus.

The blue-chip Dow and the benchmark S&P 500 were set for their worst day in a month after Bullard, president of the St.

Louis Federal Reserve, said he was among the seven officials who saw rate increases beginning next year to contain inflation.

The CBOE volatility index, Wall Street's fear gauge, spiked to 20.60 points, its highest level since May 21 following his comments.

"The commentary has sparked concerns about inflation and people are questioning how transitory it will actually be, with most of the data showing gains in excess of 3% towards the end of this year," said Sam Stovall, chief investment strategist at CFRA Research.

Wall Street's main indexes were jolted earlier this week after the Fed unexpectedly signaled it could begin tapering its massive stimulus sooner than expected, setting the benchmark S&P 500 on course to snap a three-week winning streak.

However, investors returned to heavyweight technology stocks in particular on Thursday, focusing on the Fed's projection of the economy growing a faster-than-expected 7% this year.

Financials and energy sectors fell at least 1.8% each as investors booked profits in the top-performing S&P sectors this year, while the tech-heavy Nasdaq edged 0.4% lower, the least among the major indexes.

At 9:45 a.m. ET, the Dow Jones Industrial Average was down 371.35 points, or 1.10%, at 33,452.10 and the S&P 500 was down 31.41 points, or 0.74%, at 4,190.45.

Friday is also "quadruple witching day," the quarterly simultaneous expiration of U.S. options and futures contracts which bring about increased trading volume at the market close and can feed into market volatility.

Transportation finance and logistics company CAI International Inc surged 46.0% after it agreed to a $1.1 billion takeover by Mitsubishi HC Capital Inc.

Declining issues outnumbered advancers for a 3.31-to-1 ratio on the NYSE and for a 2.40-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and one new low, while the Nasdaq recorded 18 new highs and 23 new lows.