NEW YORK (TheStreet) -- Stocks extended losses by mid-morning Wednesday as a surprise increase in crude inventories in the U.S. caused oil prices to fall close to $42 a barrel. 

The S&P 500 was down 1.1%, and the Nasdaq slid 1%. The Dow Jones Industrial Average dropped 1.1%, or 200 points, as all 30 components of the index fell into the red. 

Crude oil stocks increased 2.6 million barrels in the week ended Aug. 14, according to the U.S. Energy Information Administration. Economists had expected a decline of 1.2 million barrels. West Texas Intermediate crude fell 1.1% to $42.14 a barrel on the news as commodity traders fear an extended imbalance in supply and demand. 

Markets were already under pressure after speculation over when the Federal Reserve will hike rates, and whether a hike is premature, caused jitters. The minutes from the Fed's meeting in July will be released mid-afternoon Wednesday and will be closely examined for clues as to whether the central bank is ready to hike interest rates at the September meeting.

Theree was plenty else for Fed watchers to keep busy with on Wednesday after Narayana Kocherlakota, president of the Minneapolis Fed, wrote an op-ed in The Wall Street Journal arguing against a rate increase.

Raising rates "would create profound economic risks for the U.S. economy," he wrote. "Given the prevailing economic conditions, higher interest rates would push the economy away from the FOMC's economic goals, not toward them."

Jeffrey Gundlach, co-founder of investment firm DoubleLine Capital, backed up Kocherlakota's argument. Speaking with CNBC, Gundlach noted that hiking rates would be detrimental to the economy given the current price of junk bonds.

"To raise interest rates when junk bonds are nearly at a four-year low is a bad idea," he said. "It opens the lid on a Pandora's Box of a tightening cycle."

Weaker-than-expected consumer inflation also highlighted the danger in the Fed hiking too soon. U.S. consumer prices nudged 0.1% higher, according to the Bureau of Labor Statistics, half the increase economists had expected. Higher housing costs drove the reading higher in July, while the remainder of factors such as energy and food costs remained soft.

"The very muted ... gains in both headline and core CPI in July will certainly give the Fed pause for thought in whether to raise interest rates or not at the next FOMC meeting in mid September," said Paul Ashworth, chief U.S. economist at Capital Economics. "On balance, we still think the Fed will go ahead and raise rates in response to the cumulative improvement in labor market conditions. But the decision is finely balanced."

China also contributed to a sense of uncertainty after wild swings on its stock market overnight. The Shanghai Composite fell more than 5% before recouping losses and ending the day 1.2% higher. The index fell more than 6% a day earlier on continued fears over a slowdown in the world's second-largest economy. 

Lowe's (LOW) fell more than 1% after reporting net income of $1.20 a share, 4 cents below estimates. However, revenue of $17.3 billion climbed 4.2% from a year earlier and came in above analysts' estimates.

Staples (SPLS) slid 1.7% after reporting a quarterly sales decline of 7.6% at North American stores and online and guiding for a current-quarter sales decline. Earnings of 12 cents a share matched expectations.

Target (TGT) shares were on watch after the retailer beat quarterly expectations on the top- and bottom-line and increased full-year guidance. The company expects 2015 earnings between $4.60 and $4.75 a share, up from a previous forecast of $4.50 to $4.56.

Hormel Foods (HRL) was lower after reporting a mixed quarter. The food-processing company earned 56 cents a share, a penny above estimates, while revenue sank 4% to $2.19 billion. However, Hormel raised its full-year earnings estimates to as high as $2.63 a share on improved profitability in its meats division. 

Seagate (STX) announced on Wednesday that it is acquiring Dot Hill Systems (HILL) for $654 million in cash or $9.75 a share. The deal values the storage software company at a 88% premium to Tuesday's closing price. Dot Hill shares rocketed more than 80% higher.

Yum! Brands (YUM) added nearly 3% after appointing executive Micky Pant as CEO of the company's China division. The change in leadership comes at a time of plummeting sales in the region after a 2014 food scandal.