Although the economic slowdown is a big concern, "we must not lose sight of the other part of the Fed's dual mandate — which is price stability," Federal Reserve Bank of Philadelphia President Charles Plosser said, according to Dow Jones Newswires. The economy has been weakening but costs remain high, leading some economists to believe that the United States is headed for a troubling predicament known as stagflation.

Plosser's comments were not surprising, particularly since he is known for being more apt to argue against a rate cut than other Fed members. Nonetheless, the speech — along with a dismal sales report from Macy's — sapped some of Wall Street's relief Wednesday over better-than-expected fourth-quarter productivity and labor cost data and profit results from Walt Disney Co.

"It just shows you the market's really skittish and temperamental," said Jim Herrick, director of equity trading at Baird & Co. "I really believe the market is driven by emotion, that there's this want to test the lows again."

After climbing until early afternoon Wednesday, stocks switched gears and began extending the losses they made Tuesday, when the Dow Jones industrial average suffered its biggest percentage drop since Feb. 27, 2007. The trigger that day was the Institute for Supply Management's report of a surprising January contraction in the U.S. service sector — news that bolstered the argument that the nation is in recession.

"There's no smoking gun here; we get one bad number, one good number. .... We're probably going to chop around here until investors get a better feel on this recession-or-no-recession question," said Phil Orlando, chief equity market strategist at Federated Investors.

According to preliminary calculations, the Dow fell 65.03, or 0.53 percent, to 12,200.10, after rising more than 100 points in earlier trading.

On Tuesday, the blue-chip index dropped 370 points, or 2.93 percent, and on Monday it lost 108 points. Because it rallied so strongly last week, it remains above the 15-month trading low it sank to in late January.