Wall Street stocks and government bond prices fell on Thursday after data showed the rate of US inflation hit a 40-year high in January.

The latest hot consumer price index data prompted traders to bet on more aggressive action from the Federal Reserve, with six quarter-point interest rate increases priced into the market for 2022.

With higher rates, and therefore higher borrowing costs, on the horizon, US stocks stumbled.

The broad-based S&P 500 index closed down 1.8 per cent, pulled lower by the real estate and tech sectors, while the technology-heavy Nasdaq fell 2.1 per cent.

The market took a knock in the afternoon when James Bullard, president of the Saint Louis Fed and a voting member of the Federal Open Market Committee, said he would like to see 1 percentage point’s worth of interest rate increases by July 1 — and that the FOMC should consider meeting on an unscheduled basis before March to start the tightening cycle.

“I was already more hawkish but I have pulled up dramatically what I think the committee should do,” Bullard told Bloomberg on Thursday.

US government debt came under renewed selling pressure. The 10-year Treasury note, which moves with inflation and economic expectations, rose to a high of 2.05 per cent, breaching 2 per cent for the first time since August 2019.

Though the move in 10-year yields was significant, the biggest changes were in shorter-dated notes suggesting that the market’s focus on Thursday was more on the Fed’s potential policy reaction to inflation rather than inflation itself.

Additional reporting by James Politi in Washington

Read more on the day’s market moves here