Stocks fell sharply Wednesday, with the Dow Jones Industrial Average suffering its first decline of 2022, as Wall Street geared up for potentially tighter U.S. monetary policy.

The blue-chip Dow Jones Industrial Average ended the day down 392.54 points, or 1.07%, at 36,407.11. The 30-stock average hit an intraday record earlier in the session. The S&P 500 fell 1.94% to 4,700.58. The tech-heavy Nasdaq saw its biggest one-day loss since February, losing 3.34% to end at 15,100.17.

Rates also jumped, putting pressure on equities, after the minutes from the Federal Reserve’s most recent meeting showed the central bank has discussed reducing its balance sheet shortly after it raises rates later this year.

The Fed is tapering its bond purchases now and has already indicated to the market that it will raise rates soon after it finishes that taper in March. But the market is awaiting indications from the Fed on what it will do with its nearly $9 trillion balance sheet once it’s done increasing it. The minutes show officials to be considering shrinking the balance sheet along with raising rates as another way to remove policy accommodation.

“Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate,” the meeting summary stated.

That runoff is “the key risk for the year,” according to Infrastructure Capital Management CEO Jay Hatfield.

“If the Fed starts shrinking the balance sheet that’s going to be disastrous,” Hatfield said. “I assume that they’re going to keep the balance sheet flat, but it is possible if inflation stays really hot that they start letting the balance sheet run off.”

If that happens, “it’s not just that they’re not injecting liquidity, they’re taking liquidity out,” Hatfield added. “You don’t want to be in the stock market when the Fed is taking liquidity out of it — it’s like being in Coke when Warren Buffett is selling his position.”

The Fed also signaled it could get more aggressive in raising rates.

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the minutes stated.

Megacap tech stocks fell, with Netflix and Alphabet each dropping at least 4%. Meta Platforms and Microsoft both lost more than 3%, and Apple slid 2.7%.

Salesforce dropped 8.2% following a downgrade from UBS. The firm also cut Adobe, sending its shares down 7.1%. Among chipmakers, Advanced Micro Devices and Nvidia both fell about 5%.

“You’ve seen a move of people rotating from tech, high-growth and momentum stocks to value, cyclical and income stocks,” Hatfield said. “It’s the liquidity that’s driving this, not the interest rate, necessarily. When there’s liquidity you go for momentum because the Fed is forcing stocks and bonds to rally. If the Fed is going to pull that liquidity out, you say I want to be in what’s the cheapest, the lowest risk.”

Honeywell and Caterpillar posted small gains amid the broader market sell-off. Fellow Dow member Pfizer gained 2% after analysts at Bank of America upgraded the stock.

“The first half of the year will be all about a strong U.S. growth outlook that should benefit cyclical stocks, but a sustained pullback with tech stocks is not justified given the Fed hasn’t officially started their interest rate hiking cycle,” Oanda senior market analyst Edward Moya said.