Wall Street Falls Amid Inflation Talk

Updated from 9:44 a.m. EDT

U.S. stocks were weak Tuesday as traders took cover amid hawkish comments from the Federal Reserve chief and a plunge in China's market overnight.

The Dow Jones Industrial Average saw action on both sides of the flat line and was getting particularly strong support from financial components Citigroup (C Quote), JPMorgan Chase (JPM Quote) and Bank of America (BAC Quote).

Recently, however, the Dow was off 10 points to 12,270. The S&P 500 was giving up 5 points, or 0.4%, to 1356, and the Nasdaq Composite was surrendering 20 points, or 0.8%, to 2440.

"The market is undergoing a state of real nervousness here," said Peter Cardillo, chief market economist with Avalon Partners. "The fact that [Fed chairman] Ben Bernanke and other Fed members are continually talking about the risks of higher inflation and hinting that the Fed is going to have to raise interest rates to combat inflation, I think, is really weighing heavily on stocks."

As the new day began, traders were dealing with a speech from leader of the central bank, who said the jump in oil costs "has added to the upside risks for inflation and inflation expectations," even as his expectations for a "substantial downturn" have simultaneously diminished. He added that the Fed "will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation."

At the same time, Dow Jones quoted Dallas Fed President Richard Fisher as saying he is forecasting "anemic" growth, but not a recession, and Reuters said the official would be willing to accept a slower economy if that meant inflation would be contained. Also, the Boston Fed's Eric Rosengren reportedly said inflation was running at an "undesirable" level.