Citadel Securities urges Fed to consider more rate hikes

Citadel Securities warned the Federal Reserve risks falling behind on inflation and urged policymakers to consider additional interest-rate hikes after U.S. consumer prices reaccelerated. The Consumer Price Index rose 3.8% year-on-year in April.

Nohshad Shah, head of EMEA fixed-income sales at Citadel Securities, pointed to recent price acceleration and a fresh oil-price shock following higher tensions between the U.S. and Iran. He described the oil effect as the sharpest inflation impulse since 2023 and urged the Fed to reassess its policy stance.

Citadel’s internal models estimate current policy rates are close to neutral — a level intended neither to stimulate nor restrain the economy — but the firm finds that stance inconsistent with ongoing expansionary forces. Easier financial conditions driven by equity gains and strong investment in artificial intelligence are supporting stronger-than-expected growth, and market pricing has remained resilient despite higher inflation readings.

Labor-market data have stayed firm. Weekly ADP employment indicators imply private-sector hiring consistent with monthly payroll gains of about 170,000 to 180,000 jobs, according to Citadel’s analysis. Shah also noted that tighter immigration policy may have lowered the pace of payroll growth needed to keep unemployment stable, increasing the risk that continued hiring could push up wages and add to inflation.

“Inflation, not the labor market, is the greater risk,” Shah warned. He added that if hiring remains strong and wage growth accelerates, “rate hikes would become difficult for any Fed chair to avoid.”

The warning echoes concerns from some former officials about the Fed’s credibility on inflation after the central bank has not returned inflation to its longer-run 2% target since the pandemic.

Policymakers are watching energy prices, hiring trends and the effects of easier financial conditions to decide whether to tighten policy further or hold rates steady while assessing how persistent inflation will be.