Wall Street’s main stock indexes slid more than 2% on Thursday as the Federal Reserve’s guidance to stick to protracted policy tightening quelled hopes of the rate-hike cycle ending anytime soon.

The Dow Jones Industrial Average tumbled 727 points, or 2.1%, at 33,238, the S&P 500 was down 2.4%, and the Nasdaq Composite was down 2.9%.

The central bank hiked rates by 50 basis points on Wednesday, slowing down from four back-to-back 75 bps hikes, although Fed Chair Jerome Powell said recent signs of weakening inflation have not brought any confidence yet that the fight had been won.

The Fed’s policy-setting committee projected it would continue raising rates to above 5% in 2023, a level not seen since a steep economic downturn in 2007.

“The issue was the market was looking for rate cuts in 2023 and that’s not compatible with any credible economic scenario because you’d need to have quite a collapse in economic activity and a speedy deterioration of the labor market,” said Willem Sels, global CIO, private banking and wealth management at HSBC.

Money market participants currently expect at least two 25 bps rate hikes next year and borrowing costs to peak at 4.9% in the first half, before falling to around 4.4% by the year end. 

Wall Street’s main indexes have staged a strong recovery since hitting 2022 lows in October on hopes of a less aggressive Fed, but the rally stalled in December on the back of mixed economic data and worrying corporate forecasts.

Investors also digested economic data on Thursday that showed a steeper-than-expected decline in retail sales in November and the number of Americans filing for unemployment benefits falling last week, indicating a tight labor market.

“Today’s data reinforces what Powell was saying yesterday that this is going to take time and the market seems to want to try and fast forward through the messy parts and it’s just not going to be able to do that because the Fed is not going to let it,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

The Bank of England and the European Central Bank also raised their key interest rate by 50 bps each and indicated an extended hiking cycle in a bid to tame spiraling inflation.

Shares of megacap companies which are sensitive to rising rates fell. Apple, Amazon and Microsoft dropped between 1% and 3%.

Netflix slumped 6.8% after a media report that the entertainment services firm would let its advertisers take their money back after missing viewership targets.