Something the Federal Reserve has been quietly dreading just showed up in business surveys. On the surface, April’s flash Purchasing Managers’ Index looked like a recovery story.

S&P Global’s headline flash Composite PMI Output Index rose to a three-month high of 52.0 in April from 50.3 in March, above the 50 threshold that separates expansion from contraction.

The Manufacturing PMI jumped to 54.0, the highest reading since May 2022. The Services Business Activity Index climbed to 51.3 from 49.8, outpacing expectations of 50.

But underneath, it was a price shock in slow motion — the clearest sign yet that President Donald Trump‘s Strait of Hormuz campaign is rewiring the U.S. inflation outlook from the bottom up.

An Inflation Spike The Fed Cannot Ignore

Average prices charged for goods and services rose in April at the fastest pace since July 2022.

Manufacturers reported the steepest jump in goods prices in 10 months. Service sector selling-price inflation reached a 45-month high — a level not seen since the peak post-pandemic reopening quarter.

Input-price inflation, the upstream signal that eventually bleeds into consumer prices, hit an 11-month high. Manufacturing input costs climbed at the second-fastest rate since July 2022.

“Prices are already spiking higher in this environment, and not just for energy but for a wide variety of goods and services.

The overall inflation picture is now the most worrying for almost four years,” commented Chris Williamson, chief business economist at S&P Global Market Intelligence.

Companies cited higher energy prices, a broad range of commodity and input costs, and rising staffing costs.

Every transmission channel the Fed watches for second-round inflation effects is flashing at once.

The supply side is worse. Factories reported the greatest lengthening of supplier delivery times since August 2022, extending an uninterrupted eight-month trend. Purchasing activity rose at the second-fastest rate in nearly four years, as companies piled into safety stocks to front-run shortages.

Survey respondents told S&P Global they were doing “panic” and “emergency” buying — language that last appeared in the surveys during the 2021 pandemic supply squeeze.

Employment made the picture worse rather than better.

Hiring barely rose in April after falling in March, producing the weakest back-to-back months for jobs since late 2024. Manufacturing headcounts fell for the first time in nine months.

Companies cited the need to cut staffing costs against uncertain demand and rising input prices, the classic late-cycle corporate response to a margin squeeze.

Williamson translated the PMI into growth terms that should worry anyone hoping for a soft landing.

He said the April reading is broadly consistent with an economy struggling to manage annualized growth above 1%, with the vast service sector acting as the principal drag.

Orders for services ranging from travel to financial products barely rose, reflecting household and business hesitancy as the war pushes prices higher and the prospect of tighter policy weighs on spending.

The Fed’s Dilemma And Market Reactions

“Balancing the risks of inflation lifting sharply higher against the underlying weakness of economic growth presents policymakers at the Fed with a growing dilemma,” Williamson said.

“However, it will likely be increasingly hard to make a case for rate cuts if inflation follows the path signalled by the PMI while the economy continues to eke out only modest growth,” he added.

The CME FedWatch tool currently shows roughly a 100% probability the Federal Open Market Committee holds rates unchanged at its April 29 meeting, keeping the target range at 3.50% to 3.75%. The March 2026 dot plot projected only one 25-basis-point cut for the remainder of the year, and the path has been drifting in a more hawkish direction since.

Equity markets inched lower on Thursday.

The SPDR S&P 500 ETF Trust ( SPY ) eased 0.1% in early trading, while the Invesco QQQ Trust gave back a portion of Wednesday’s record close.