Updated from 2:47 p.m. EST

While the

Federal Reserve

still plans to be "measured" in raising interest rates, its new observations about inflation had the markets reeling Tuesday.

The Federal Open Markets Committee raised official interest rates by a quarter-point for a seventh consecutive meeting, and maintained its commitment to carry out future hikes at a measured pace. The official fed funds target now sits at 2.75%.

That was all expected. What spooked markets was the wording of the Fed's accompanying policy statement, which evinced creeping concern about inflation.

"Output evidently continues to grow at a solid pace despite the rise in energy prices, and labor market conditions continue to improve gradually," the policymaking Federal Open Market Committee wrote. "Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident."

Most observers expect the Fed to go with another quarter-point increase when it meets next month. However, the Fed's added observation that "pressures on inflation have picked up" suggests that the door is open to a more aggressive posture after that, if circumstances warrant.

Some investors feel these observations are long overdue.

"Inflation is here, big-time, and we're all in denial about it," said John Bollinger, president of Bollinger Capital Management. "It's not showing up strongly in economic indicators, but everyone is seeing higher prices anecdotally at the grocery store and lots of other places.

"I think the Fed has a real problem on their hands. They're doing the right thing by raising rates, but rates are still low, so it seems like they're either worried about other things or they don't think it's a very big problem," Bollinger said.

Other tweaks in the Fed's key sentences were also a surprise. The Fed stated Tuesday: "The committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal."

In its Feb. 2 statement, the Fed said: "The committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal."

The next sentence is also modification: "With underlying inflation expected to be contained..."

In its Feb. 2 statement, the Fed described inflation as "expected to be relatively low."

Earlier Tuesday, the government said its producer price index rose higher than expected at 0.4% in February, but the increase was attributed to soaring oil prices. The core index, which excludes oil and food prices, rose 0.1% as expected.

"Oil takes the blame for some of the inflation in the economy," Bollinger said. "It's definitely exacerbating the problem, and I think it will continue to do so, since oil will continue to go higher. But it's not the only force causing inflation here."

On Wednesday, the government is expected to report that the consumer price index, its main gauge of inflation, rose 0.3% in February, while the core index was up 0.2%.

The rest of the Fed's statement was largely unchanged from previous meetings. Still, stock and bond prices slid on the news. The

Dow Jones Industrial Average

was recently down 60 points on the news after rising 40 points earlier, while the yield on the 10-year Treasury note surged 22 basis points to 4.61%.

"The market reaction is pretty negative at first blush, but we're not changing our outlook," said Joe Liro, equity strategist with Stone & McCarthy Research Associates. "We've got a pretty steady progression of the Fed Funds rate, and we're sticking with it in steps of 25 basis points."