As investors anticipated inflation statistics that would help determine the pace of the Federal Reserve's interest-rate rises this year, US market indexes fell to their lowest levels in more than three weeks on Thursday.

The S&P 500 index finished 2.4 percent lower, or 97.95 points, at 4017.82, while the Dow Jones Industrial Average dropped 1.9 percent, or 638.11 points, to 32272.79.

The Nasdaq Composite Index, which is centered on technology, fell 2.7 percent, or 332.05 points, to 11754.23. For much of the day, the major indices were in small drops until plummeting in the final hour of trade.

Traders and strategists believe the inflation statistics will have a significant impact on the next round of market activity and will help shape the Federal Reserve's interest-rate choices later this year. The Federal Reserve will meet next week, and it is largely expected that the central bank will raise its main interest rate by half a percentage point, as it did in June.

“Once we get a few more data points on inflation, hopefully they confirm that things are coming off the boil and the Fed, after June and July, can be a little less hawkish into the fall,” said Tim Holland, chief investment officer at Orion Advisor Solutions. “That’s what the markets are hoping for.”

Investors have been positioning their portfolios throughout the year to account for the conclusion of easy-money conditions in the United States. Traders, on the other hand, must now account for tighter policy in the Eurozone.

European Central Bank raises interest rates

The European Central Bank announced Thursday that its key interest rate would be raised from minus 0.5 percent to zero or higher by September, and most likely higher after that. The central bank has stated that it intends to begin raising rates in July with a quarter-percentage-point increase. It also stated that its large-scale bond-buying program would terminate on July 1.

The news sent equities plunging in both the United States and Europe. The Stoxx Europe 600 index fell about 1.4 percent.

The actions by central banks in the United States and Europe come as global inflation continues to put pressure on people. When consumer-price index data for May is announced on Friday, investors will get a new image of inflation in the United States.

Read next: US Federal Reserve hikes interest rate

According to economists polled by The Wall Street Journal, inflation in the United States maintained steady at 8.3 percent in May, the same annual rate as in April.

“The concern here in the US is the Fed tightening into an economy that is already showing signs of a slowdown,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.

“The ECB is tightening into an even more pronounced slowdown; that could impact global growth, which in turn could be another headwind for company earnings.”

The focus in markets has switched to what the Fed might do at its September meeting. According to investors and analysts, some traders have been hesitant to make large wagers in the market until a clearer picture develops.

Some strategists say that this has resulted in more turbulent trading in recent sessions as traders try to figure out whether this year's market selloff has reached a bottom or if more pain is on the way. Many others are also considering the prospect of a US recession.

“People are not having any conviction one way or another and are taking chips off the table,” said Viraj Patel, global macro strategist at Vanda Research. “They are not wanting to get caught offside in either direction.”