The near-vertical AI-driven rally that pushed Wall Street to record highs, one of the fastest and most powerful snapback advances in modern market history, finally collided with a new reality this week: inflation is reaccelerating, and the bond market is beginning to price in the risk of another Federal Reserve rate hike.

April consumer inflation rose to 3.8% year-over-year, the hottest reading since May 2023, as the economic fallout from the Strait of Hormuz blockade continued to ripple through energy and transportation costs.

Producer inflation painted an even uglier picture. The Producer Price Index surged 6% from a year earlier, far above the 4.9% consensus estimate and marking the highest annual reading since December 2022.

Meanwhile, the economy continues to run hot. The Atlanta Fed's GDPNow model is currently tracking second-quarter real GDP growth at 4%, underscoring the resilience of demand despite higher borrowing costs and mounting geopolitical stress.

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Inflation Jumps To 3.8% In April, Kills Fed Rate-Cut Hopes

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