The Nasdaq experiences another 2% slide in stock prices as the Fed announces policy tightening plans.

On Wednesday, stocks dropped for the second consecutive day and interest rates reached new highs following the Federal Reserve's announcement on monetary policy tightening to combat inflation, causing worry about its impact on the economy.

On Wednesday, the Dow Jones Industrial Average dropped 144.67 points, or 0.42%, to 34,496.51. The S&P 500 decreased by 0.97% to 4,481.15, while the Nasdaq Composite fell another 2.22% to 13,888.82, following a decline of about 2.3% on Tuesday.

LPL Financial's chief equity strategist, Quincy Krosby, stated that the Fed's message is clear: "You're wrong" if anyone believes they will become more dovish in their battle against inflation.

The Fed's meeting minutes, released on Wednesday afternoon, indicated that officials generally agreed to shrink their balance sheet by $95 billion per month. Additionally, the minutes showed that central bank officials were considering larger rate hikes than the usual 25-basis-point, or quarter-point, increments. As a result, stocks dipped to session lows after the release of the minutes but bounced back slightly to end the day.

The minutes stated that many participants preferred a 50 basis point increase in the federal funds rate target range due to inflation being above the committee's objective, inflationary risks to the upside, and the federal funds rate being below participants' estimates of its longer-run level.

On Wednesday, the rate of the Federal Reserve jumped above 2.65% to a three-year high, following the release of the Fed meeting minutes. The rate had ended Monday at 2.40%. The minutes were from the Fed's March meeting, where it raised rates by a quarter point and indicated six more hikes of that magnitude were coming this year.

According to James Caron of Morgan Stanley Investment Management, the stock market is beginning to understand that the $60 billion Treasurys and $35 billion in mortgages are becoming a reality. If the Federal Reserve raises interest rates by 50 basis points in May and another 50 in June, it will become even more apparent. This development is not positive for the stock market.

On Wednesday, the tech sector experienced a decline as investors shifted their focus away from the group and prepared for an anticipated increase in interest rates, which could slow down the economy. The decline was led by companies such as , , and , with chipmakers like and also contributing to the sector's decline, falling about 5.9% and 2.6%, respectively.

Investors remained focused on finding stocks with consistent earnings, avoiding those with potential for future growth. The utilities, health care, and consumer staples sectors experienced gains on Wednesday, with and increasing by more than 2%. Consumer staples such as and also saw increases of over 1%, while rose by 2.3%.

Chris Zaccarelli, CIO at Independent Advisor Alliance, stated that equities are beginning to price in a more aggressive Fed, as seen in the bid for safety and the classic risk-off move.

Recent developments have suggested that officials may soon implement faster policy tightening, as indicated by the findings and remarks from Fed Governor Lael Brainard and others.

Philadelphia Federal Reserve President Patrick Harker stated on Wednesday that he is deeply concerned about the increase in inflation and anticipates a sequence of gradual, systematic increases as the year progresses and the information changes.

Brainard's support for higher interest rates and a "rapid" reduction of the central bank's balance sheet led to a decline in stocks in the previous session.

Brainard and Daly emphasized the importance of reducing inflation during their respective webinars.

Cliff Corso of Advisors Asset Management stated on CNBC's "Worldwide Exchange" that the uncertainty surrounding higher interest rates and lower-income cash flow stocks would result in continued market volatility, while growth-type stocks may continue to be discounted as rates rise.

Earnings ahead

Traders were also bracing Wednesday for the start of the corporate earnings season.

David Kostin, the chief U.S. equity strategist at Goldman Sachs, stated on CNBC's "Squawk on the Street" that stocks with "resilient margins" are better equipped to handle the current climate. He specifically mentioned companies such as and , which have consistently maintained "high and stable margins" despite the pandemic.

According to Kostin, the U.S. equities market may have a 5% upside from these likes between now and the end of the year. However, if a recession occurs, it will result in a significant downside, but that is not the current base case.

— CNBC’s Patti Domm and Jeff Cox contributed reporting