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U.S. stocks fell on Friday with the Dow Jones Industrial Average on pace to post its worst week since January, as bank shares led the market sell-off after the Federal Reserve's latest policy update.

The blue-chip average dropped 400 points, bringing its week-to-date losses to 2.8% The S&P 500 fell 0.8%, pushing its loss this week to more than 1%. The tech-heavy Nasdaq Composite dipped 0.5%.

Stocks extended their losses asSt. Louis Fed President Jim Bullard said on CNBCthat it was natural for the Fed to tilt a little "hawkish" this week and that the first rate increase from the central bank would likely come in 2022.

Wall Street registered losses as the Federal Reserve on Wednesday afternoon added two rate hikes to its 2023 forecast and increased its inflation projection for the year.

The decline in stocks came as the Fed's actions caused a drastic flattening of the so-called Treasury yield curve where the yields of shorter-duration Treasurys, like the 2-year note, rose, while longer duration yields, such as the benchmark 10-year, fell. The retreat in long-dated bonds reflects less optimism toward economic growth, while the jump in short-end yields shows the expectations of the Fed raising rates.

This phenomenon is hurting bank stocks particularly as bank earnings could take a hit when the spread between short-term and long-term rates narrows. Goldman Sachs shares fell more than 1% Friday, while JPMorgan and Morgan Stanley also traded in the red.

Fed Chairman Jerome Powell said on Wednesday that officials have discussed tapering bond buying and would at some point begin slowing the asset purchases.

"Investors may be interpreting the Fed's hawkish tilt Wednesday as a sign that an extended US post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy," said Goldman Sachs' Chris Hussey in a note.

Most commodities prices rebounded a bit on Friday followingsharp declines this week as China attempts to cool rising prices and the U.S. dollar strengthens. Futures prices for copper, gold, and platinum rebounded Friday, but were still down big for the week.

Chip stocks, which have had a good week, looked set to continue their run on Friday with shares of Nvidia higher by about 1%.

Adobe shares gained about 3% after earnings and revenue topped estimates.

Friday also coincides with the quarterly "quadruple witching" where options and futures on indexes and equities expire. Many expect trading to be more volatile in light of this event.