Markets recoil as investors react to higher than expected inflation.

Stocks tumbled and bond yields jumped after consumer price data for May showed a higher-than-expected surge in inflation, indicating that policymakers would need to continue their aggressive attempts to slow the economy.

The S&P 500 fell more than 2.5 percent in early trading on Friday. Yields on short-term government bonds, which serve as benchmarks for borrowing costs, rose sharply. The two-year Treasury note rose above 2.9 percent, to its highest level since 2018.

For investors, the critical question was whether the inflation data would spur the Federal Reserve to raise interest rates higher or more quickly than expected, and what the rapid rise in borrowing costs could mean for the economy. The central bank is expected to raise its benchmark rate by half a percentage point next week, and then again in July.

It would be “a massive surprise” if the Fed didn’t raise interest rates by a half-point in July, Jim Reid of Deutsche Bank wrote in a morning note, so the main action would come from investors reassessing the size of a September increase based on the details in the inflation report. Based on futures trading, investors now put the probability on a half-point rate increase in September at 65 percent, up from less than 50 percent a month ago.

The S&P 500 dropped 2.4 percent on Thursday, its largest daily decline in about three weeks. The index is on track for a weekly decline of more than 2 percent, which would mean the index has fallen for nine of the past 10 weeks.

Those losses mean that the index is now down 18 percent from its Jan. 3 record, bringing it back within reach of bear-market territory — a drop of 20 percent from a high — which signals a serious shift in investor sentiment on Wall Street. The index briefly dipped into bear territory last month, before recovering and closing just above that psychologically significant level.