Stocks fell sharply, bond yields rose and the dollar strengthened Friday as investors heeded the Federal Reserve's signal that its battle with inflation could result in much higher interest rates and a recession.

The sell-off Friday was global, in a week where the Fed boosted rates by another three-quarters of a point and other central banks raised their own interest rates to combat global inflation trends.

Weak PMI data on manufacturing and services from Europe Friday, and the Bank of England's warning Thursday the country was already in recession added to the negative spiral.

Stocks took on an even more negative tone earlier this week, after the Fed raised interest rates Wednesday by three-quarters of a point and forecast it could raise its funds rate to a high 4.6% by early next year.

Pivot to Europe, the ECB [European Central Bank] is raising rates from negative to something positive at a time when they have an energy crisis and a war in their backyard.".

Arone said around the globe, the common threads are slowing economies and high inflation with central banks engaged to curb high prices.

central bank particularly rattled markets by forecasting a new higher interest rate forecast, for the level where it believes it will stop hiking.

"Until we get a picture where interest rates come off and inflation begins to come down, until that happens expect more volatility ahead," said Arone.

Boockvar said the market moves are painful because the central banks are unwinding years of easy money, from even before the pandemic.

He said interest rates were suppressed by global central banks since the financial crisis, and until recently, rates in Europe were negative.

"All these central banks have been sitting on a beach ball in a pool these last 10 years," he said.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said he thinks markets are beginning to price in a higher terminal rate for the Fed, to as high as 5%.

Strategists said they see no specific signs, but they are monitoring markets for any signs of stress, particularly in Europe where rate moves have been dramatic