Wholesale prices surged in February, jumping 0.7% on the month when economists were penciling in 0.3%, and the producer price index is now running at 3.4% year over year, its hottest reading since February 2024. Core PPI, which ignores food and energy, sits at 3.9%. The Fed targets 2%, and the Fed announces its rate decision later today. The timing is, to put it charitably, awkward.

Services costs drove much of the problem, rising 0.5% in a way that complicates the White House's preferred narrative that tariffs are the inflation story. Portfolio management fees climbed 1% on the month. Securities brokerage and investment advice costs jumped 4.2%. Goods prices rose 1.1%, food was up 2.4%, and fresh and dry vegetables soared 48.9%, which at this point reads less like a data point and more like a wail of anguish coming from your local farmers market.

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The broader backdrop makes none of this easier. Oil is trading around $100 a barrel, up more than 70% year to date as U.S. and Israeli strikes on Iran keep energy markets rattled. None of that shows up in the February numbers yet, meaning today's print is essentially the calm before a second storm the Fed can already see coming.

Markets responded predictably. The Dow fell 200 points, Treasury yields climbed, and traders pushed their bets on the next rate cut all the way to December. The Fed is widely expected to hold rates at 3.5% to 3.75% when it announces this afternoon, but might now be thinking about raising at the next meeting. Get ready for one of the more uncomfortable press conferences Jay Powell has had to sit through in a while… and he’s literally Jay Powell.

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