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Stock losses accelerated on Friday afternoon as the chances of a September rate hike increased amid hawkish Federal Reserve commentary.

The S&P 500 fell 1.7%, on track for its biggest daily decline since the Brexit decision in late June. The Dow Jones Industrial Average declined 1.7%, and the Nasdaq was lower by 2%. If stocks close at current levels, it will be the first move of more than 1% since July 8. 

Speculation over interest rate hikes peaked on Friday after Boston Fed President Eric Rosengren backed a rate hike sooner than later.

"My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy," Rosengren said in a speech in Quincy, Massachusetts.

Rosengren, a voting member of the Federal Open Market Committee, said that the risks to the U.S. economy have diminished and that there are concerns of "growing imbalances in some asset classes" if the Fed does not step in to normalize rates.

Fed Gov. Daniel Tarullo, also a voting member of the FOMC, added to the uncertainty on Friday after noting he needs to see more signs of steady inflation before he would vote for a hike. Speaking with CNBC, Tarullo said the U.S. is "not running a hot economy." However, he did not rule out a hike this year.

A number of weak data points, including a slowdown in services activity and a weaker-than-expected August jobs report, have reduced the chances of a move when the Fed meets in less than two weeks. However, central bank members continue to signal a hawkish tone, suggesting that the U.S. economy is near or at the levels that warrant another rate hike.

A boost in rates in September currently has a 27% likelihood, according to CME Group fed funds futures, far higher than a 15% chance earlier in the week. The majority of investors are banking on a December rate hike. Chances of a move during the Fed's final meeting of the year sit at 46%.

Crude held sharply lower after a weekly read on U.S. oil rig activity showed the number of active oil rigs increase by 7. Crude had ended Thursday with gains of more than 4% after a steep and unexpected decline in domestic inventories. The amount of crude stored in U.S. inventories declined by 14.5 million barrels over the past week, the biggest weekly decline since 1999 and far better than an expected increase of 200,000 barrels. 

West Texas Intermediate crude oil closed 3.6% lower at $45.88 a barrel on Friday.

Less than 20 companies in the S&P 500 were in the green on Friday. Among the few, Wynn Resorts (WYNN - Get Report) , MetLife (MET - Get Report) , Prudential Financial (PRU - Get Report) , and M&T Bank Corporation (MTB - Get Report) were higher. The biggest losers for the day includes Diamond Offshore (DO - Get Report) , CarMax (KMX - Get Report) , United Rental (URI - Get Report) , and Alcoa (AA - Get Report) . 

In earnings news, Restoration Hardware (RH - Get Report) rose 5% after reporting a better-than-expected second quarter. The home-furnishings retailer earned an adjusted 44 cents a share, 15 cents higher than forecast. Revenue increased 7.2% to $543.4 million and exceeded consensus by $32 million.

Finisar (FNSR - Get Report) jumped 13% after posting record sales in its first quarter. The fiber-optic company reported net income of 38 cents a share, 8 cents higher than expected. Sales of $341.25 million climbed nearly 9%. Finisar CEO Jerry Rawls credited strong demand for 100GB/s transceivers for its quarterly performance.

Kroger (KR - Get Report) moved slightly higher despite missing sales estimates in its recent quarter and reducing its full-year guidance. The supermarket chain reported a 4% increase in sales to $26.6 billion, missing expectations by $220 million. Excluding fuel sales, second-quarter revenue rose 7.3%.

Hovnanian (HOV - Get Report) slid 12% after reporting a surprise loss in its recent quarter. The real-estate company posted a net loss of 6 cents a share, down from profit of 13 cents a share a year earlier. Analysts had expected profit of 2 cents a share. The loss came as a surprise given the robust recovery and high demand in the housing market. The company expects to return to profitability in the second half of the year.

Facebook (FB - Get Report) was added to Goldman Sachs' Focus List on Friday. Analysts said the company is an "asset-light disruptor" able to use its "world-leading user base and mobile engagement to monetize long-term growth."

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