Investors have doubts about Federal Reserve Chairman Kevin Warsh's commitment to fighting inflation. And those worries are showing up across markets.

Stocks fell sharply and longer-term bond yields jumped Wednesday after Warsh displayed some reluctance to raise interest rates at the same time as renewed fighting in the Middle East threatened to drive up energy costs.

The Fed left interest rates unchanged on Wednesday, with three officials dissenting in favor of raising rates in a potential sign that the central bank is moving closer to a rate increase. But in a postmeeting press conference, Warsh seemed to imply that a near-term rate increase might not be needed because of a recent rise in bond yields, which has already pushed up borrowing costs across the economy.

That increase in yields "has provided us some comfort," he said.

That message prompted a negative reaction in the bond market, which quickly spread into stocks.

The S&P 500, which had turned slightly positive right after the Fed's decision, ended the day down 1.5%. The Dow Jones Industrial Average fell more than 1100 points, or 2.2% -- its largest percentage decline since April 2025. The Nasdaq Composite gave up 1.7%, barely staying out of correction territory.

Eight out of the 11 S&P 500 sectors ended the day in the red, led by industrials, which sank 3.2%

The moves came after yields on longer-term bonds shot higher and yields on short-term Treasurys dropped, suggesting investors think that the Fed might not raise rates quickly enough to control inflation. The gap between yields on Treasury inflation-protected securities, or TIPS, and ordinary Treasurys also increased, sending the same signal.

Investors are concerned that Warsh is "strong on inflation in word, but isn't following through in deed," said John Briggs, head of U.S. rates strategy at Natixis Corporate and Investment Banking.

Adding to inflation anxieties were developments in the Middle East, where a surprise missile attack by Iran dented hopes for a new deal to reopen the Strait of Hormuz. President Trump promised a sharp military response to the attack.

The yield on the 10-year U.S. Treasury note reached nearly 4.7% in late afternoon trading, according to Tradeweb, up from 4.604% Tuesday. Yields rise when bond prices fall.

The potential direction of interest rates has amounted to a secondary plotline in markets for much of this year, with investors generally more focused on all things artificial intelligence.

In May, U.S. stocks posted some of their biggest gains even as traders were scaling up bets that the central bank would raise rates at least once this year.

More recently, there have been signs of the Fed mattering a little more to investors, with stocks stumbling as rate expectations have climbed in response to rising energy prices. Concerns about the escalating cost of the tech sector's AI investments have also weighed on shares.

Rate expectations play a major role in determining yields in U.S. government bonds, which in turn influence an array of other borrowing costs, such as mortgage rates.

As rate expectations have moved higher in recent weeks, Treasury yields have also climbed, with the 10-year Treasury yield topping 4.7% last week -- its highest level since January 2025.

Some analysts have noted that rising Treasury yields might be a welcome development for Warsh, who was just appointed by a president who has aggressively pushed the Fed to lower rates.

Since taking the helm of the Fed in May, Warsh has repeatedly emphasized the importance of bringing inflation back down to the central bank's 2% target. But he has studiously avoided signaling what that might mean for interest rates, arguing that it is better for markets to react to economic data without his influence.