Surprise Producer-Price Report Squeezes Main Street, Boosts Hike Odds

Wall Street was already on edge after the recent surge in oil prices and rising bond yields. The Federal Reserve's decision to hike interest rates looked like it might be over, but a surprising producer-price report Thursday changed everything.

The report showed core consumer prices rose 0.3% in August, beating expectations of 0.2%. This small increase is significant because it puts pressure on the Fed to raise interest rates again next week.

Traders now price the probability of a quarter-point hike at around 85%, up from 70% before the report. The 10-year Treasury yield also climbed towards 5%, which could signal a change in the market's sentiment.

The AI capital-expenditure boom continues to add pressure to credit markets, and energy prices are rising sharply. This is causing concerns for investors that the inflation surprise may be arriving alongside a bond-market selloff that is already tightening financial conditions.