The market was looking like it would open up this morning. That is, until 8:30 a.m. when the wholesale inflation report came in at more than twice the rate economists had expected. Now the market is expected to drop. Will the Plunge Protection Team (PPT) step in as it may have done yesterday?

The reason the market reversed is that with higher than expected inflation, the Fed is less likely to cut interest rates. The Fed wants to keep core inflation between 1% and 2%, but when the PPI rises 1.3% in a month -- instead of the expected 0.6% -- investors fear that the Fed will need to raise rates to keep inflation within its target range. Is the Fed serious though? Last week, a productivity report noted that unit labor costs rose 6.6% in the last quarter of 2006. Although bonuses figured into the statistic, the slower growth in productivity suggests that wage inflation could be a future concern.

My guess is, though, that the Fed has a more complex goal -- it's torn between the desire to control inflation and the need to avoid sinking the economy too much. As this report from Fortune suggests, people with adjustable rate mortgages can get into trouble quickly when those rates rise. With two-thirds of economic growth coming from consumer spending, a rise in interest rates could then reduce the heavily leveraged consumer's ability to keep spending.