Instead, it is the stock market that has pivoted. Over two weeks of declines, the S&P has now given up 5.2%, its worst stretch since mid-June. On Friday, bond prices slid, cryptocurrencies fell and every major industry sector posted stock-market losses.

“The whole pivot topic was an area where markets got way ahead of themselves,” said

Anders Persson,

head of global fixed income at Nuveen.

Realizing that the Fed is ready to dig in is jarring to investors who were hoping the worst of 2022 was past, analysts and portfolio managers said. Now ahead: more second-guessing of how rising interest rates are likely to hit economic demand, corporate earnings and stock valuations.

“We’re not completely battening down the hatches, but we want to have a tilt toward quality and a more defensive posture,” said

Cliff Hodge,

chief investment officer at

Cornerstone

Wealth. Cornerstone is moving more of its clients’ investments into conservative sectors such as the healthcare and utilities industries, and is primed to sell shares when prices look rich.

The course of U.S. economic data in coming months will help to tell whether the market continues to shake out or finds a more stable footing. This week, traders’ attention will shift to the first of two critical data points that will land before the Fed meets again in late September. 

Friday brings the latest employment report from the Labor Department, expected to show that the economy added 325,000 jobs in August and that unemployment stayed anchored at 3.5%. An even stronger number could deepen traders’ conviction that September will close with another aggressive Fed rate increase.

“I think that that number honestly will inform the Fed’s decision as much as any actual inflation reading, and most projections I’ve seen are still for healthy jobs gains,” said

Alexander Atanasiu,

a portfolio manager at Glenmede Investment Management.

Then, a new look at the consumer-price index will provide an inflation update on Sept. 13. Last month’s edition showed prices flattening. On Friday, Mr. Powell argued that controlling prices will still probably require a longer march toward higher rates.

Speaking at an annual central-banking conference in Jackson Hole, Wyo., he told colleagues that wrangling inflation will “require maintaining a restrictive policy stance for some time.”

In less than 10 minutes, Mr. Powell mentioned inflation 46 times, said

Justin Burgin,

director of equity research at

Ameriprise Financial.

That sort of focus at the Fed raises significant doubt that the growth-oriented stocks that thrived in 2021 will continue to rebound, Mr. Burgin said.

Friday’s trading was the latest session of a tug of war that has often pitted the Fed against investors over the summer.

At its July meeting, the Fed raised its target rate’s range to 2.25% to 2.5%. Most central-bank officials have projected that the benchmark will have to continue climbing, topping 3.5% at the end of next year.

Not long ago, investors had a sharply different view: In late July, derivatives contracts projected that the Fed’s benchmark rate would peak at around 3.3% in early 2023 before moving lower again.

Now, market-based forecasts for the Fed’s path forward have shifted in a hawkish direction. Rather than a quick pivot five months from now, derivatives traders think interest rates could reach 3.8% after the Fed’s May 2023 meeting.

Mr. Powell’s speech Friday reiterated to investors that as higher interest rates work through the economy, hiring, spending and growth could slow. That is bad near-term news for stocks, said

Steven Ricchiuto,

chief economist at Mizuho Securities USA.

“Companies are going to have to lower their earnings forecasts, and stocks could revisit their lows. We could wind up in a sideways trading range in the market for some time,” Mr. Ricchiuto said.

Another aspect of Mr. Powell’s stance caught many investors’ attention. Midway through his remarks, he quoted

Paul Volcker,

who as Fed chairman presided over harsh interest-rate increases to tame runaway prices in the late 1970s and early 1980s.

“If there’s a lesson learned from the 1970s, it’s that if you back off too quickly when nominal numbers stay pretty high, you didn’t solve the problem,” said

Wayne Dahl,

a managing director at Oaktree Capital.

Write to Matt Grossman at matt.grossman@wsj.com