U.S. stocks rebounded on Wednesday before Charles Plosser, president of the Federal Reserve Bank of Philadelphia, made remarks about inflation pressures that rained on the parade.

"Fortunately, so far inflation expectations have not changed very much,'' Plosser said. "But they bear watching because there are some signs that they, too, are edging higher. These may be early warning signs of a weakening of our credibility, and we must be very careful to avoid that.''

While the recent interest rate cuts have been necessary, Plosser said, the Fed "must not lose sight of the other part of the Fed's dual mandate -- which is price stability." He added that he would advocate more rate cuts if necessary, and that he believes the economy will "skirt" recession.

The Dow Jones industrial average fell in afternoon trading after spending the morning in a 100-point rally.

Plosser's comments follow sobering words by Richmond Federal Reserve president Jeffrey Lacker yesterday, when he became the first monetary policymaker to say that the economy faces the risk of recession.

Today's stock losses follow yesterday's steep decline. The Dow fell 370 points, or 2.9 percent, after an unexpectedly negative report on the services sector was released.