Red-hot consumer inflation data for April spooked markets and raised concerns that the Fed is wrong about rising prices being just temporary.

If the Fed is wrong, that means that it could begin to unwind its easy policies quicker than expected and ultimately raise interest rates.

The Consumer Price Index for April rose 4.2% from a year ago, the briskest pace since September 2008. Economists had expected a big number, of 3.6%, because of base effects accounting for last year’s weakness. But the CPI’s surge took markets by surprise, sending Treasury yields higher and stocks lower.

The CPI measures a basket of goods and energy and housing costs. Excluding food and energy, core CPI increased by 3% year-over-year and 0.9% on a monthly basis. That compares to respective estimates of 2.3% and 0.3%.

Stocks, already lower, buckled under the inflation worry when the 8:30 a.m. ET report was released. Tech slumped and the losses on the Nasdaq accelerated. The index was down nearly 2% in morning trading, while the S&P 500 was off 1.3%.

“The tug-of-war has been intensified,” said Quincy Krosby, chief market strategist at Prudential Financial. Stocks have already been under pressure on worries that inflation is picking up and will squeeze margins and erode corporate profits.

“How transitory is transitory?” Krosby said. “All this does is provide more uncertainty in a market that is still expensive. Even with the pullbacks, it’s still expensive … We’ll have to see how the market factors it in. Does it see it as part of the reopening?”

The Fed has been forewarning there will be a short period of high inflation, as the economy reopens and comparisons to last year make inflation appear even hotter. Fed Vice Chairman Richard Clarida said Wednesday morning that he was surprised by the hot CPI data, but also reiterated that the inflation jump should be transitory.

The Fed has said it would tolerate inflation that rises above its 2% target and that will look at a range of inflation as acceptable. But the concern is that inflation could become too hot and the Fed would be forced to raise interest rates and keep raising them, a negative for stocks.

“It has pandemic written all over it,” said Mark Zandi, chief economist at Moody’s Analytics. Zandi said that while the CPI was surprising, he still expects the burst in inflation to be relatively short-lived. “Businesses are just normalizing their pricing which they cut during the pandemic. Having said that, underlying inflation is very sturdy. It’s firm.”

Zandi said some areas, like used cars, had much stronger monthly gains than expected. Used car prices were up 10% in April alone .

Airline fares were up 10.2% and hotel and motel room rates also surged by 8.8% in April. Car rental prices jumped 16.2% in April. Some goods also showed pricing strength, like children’s shoes, up 4.2% and men’s pants up 2.3%.

“The Fed wants to get inflation up, but obviously when you’re in the middle of it, you’re going to start drawing lines and worry that the acceleration isn’t what you exactly want and we’re going to overheat,:” said Zandi. “I’m sure that’s what investors are going to worry about today.”

Zandi said the airlines and hotels boosted prices all at once, more rapidly than he expected, but he still expects inflation to calm down over the summer. He forecasts a pace of 2.5% for next year.

Krosby said the stock market will now fret that inflation could rise for a longer period.

“You have to argue it’s positive. It’s positive because the economy is reopening. It’s rebounding with the the opening but there are other issues,” she said. “The Fed also wants higher inflation but can you control it? … Be careful of what you wish for.”

The 10-year Treasury yield, which moves opposite price, rose to 1.66% in early trading from about 1.62% after the inflation report. It later edged higher to 1.68%.

Futures market expectations for a Fed rate hike moved forward to December 2022 from mid-2023, said Ian Lyngen, head of rate strategy at BMO.

“If the market truly believed that the Fed was going to respond dramatically to this number, we would have a lot more than a 4 basis point move [0.04 percentage points] in Treasury yields,” said Lyngen. “But that said, on the margin, this does not help the ‘lower forever’ story. If these types of numbers persist, the Fed at some point will need to reassess how they view transitory.”

Tech and growth, the priciest parts of the market, react most to inflation fears and the threat of rising rates. The Nasdaq, home to many high-fliers, is down 6% already just for May.

Since the beginning of the second quarter, tech is the only major S&P sector to move lower, off by 0.2%. Materials are up more than 10.5% in the same period, and energy is up 8.5%.Those sectors benefit from inflation and can pass along higher prices.

Krosby said interest rate risk is higher for tech companies.

“Their cost of capital is higher for them. And the other aspect to it is if we look at the valuations in the market, the fact is big tech is kind of responsible for a good portion of these higher valuations,” she said. “You can have a more expensive market if rates stay rock bottom. When the calculus changes, then you have to question the other part, that is how expensive the market is on a P/E basis.”

The VIX also surged, up 11% to about $24. The CBOE Volatility Index, signals increased market volatility when it moves higher. It is calculated from the puts and calls options on the S&P 500.

“The question is does all of this level off at a higher inflationary level? That’s the question for the market” said Krosby. “There’s only so much that the Fed can do to squelch concerns … Even if you’re in the camp that says we’re going to have higher inflation when the economy normalizes.”