Hot US inflation report burns hopes for June rate cut

"There are still embers of inflation here and there in the economy," said Joe Davis, chief global economist at Vanguard.

For shoppers, that's painful because of the potential for even higher prices at the store. For Wall Street, that's painful because it could convince the to hold back on delivering the cuts to interest rates that traders are craving and have been betting on.

The S&P 500 had already leaped more than 20% since Halloween in part on expectations that the Federal Reserve would lower its main interest rate, which is sitting at its highest level in more than two decades. Such cuts would relax the pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other investments.

But the Fed has been waiting until it saw more evidence inflation was heading sustainably down toward its goal of 2%. After an encouraging cooling last year, the fear now is that inflation may be stuck after January's, February's and March's inflation reports all came in hotter than expected, along with data on the economy generally.

"Two data points don't make a trend, but maybe three do," said Brian Jacobsen, chief economist at Annex Wealth Management.

"If we get one more reading like this, Fed chatter will shift from when to cut to whether to hike."

Prices for everything from bonds to bitcoin to gold fell .

Traders sharply cut back on bets that the Fed could begin cutting rates in June. They now see less than a 19% chance of that, down from nearly 74% a month ago, according to CME Group.