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Or sign-in if you have an account.Citadel’s model suggests the Fed’s current rate is near the neutral level that neither stimulates growth nor constricts it. Photo by Spencer Platt/Getty ImagesThe Federal Reserve should shift closer toward hiking interest rates as rising consumer prices become the dominant threat to the United States economy, according to Citadel Securities.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Accountor“Inflation, not the labour market is the greater risk,” Nohshad Shah, head of EMEA fixed-income sales. “The Fed should take note and adjust their stance soon, lest they get behind the curve.”The warning comes after the jump in oil prices since the start of the U.S.-Iran war caused the biggest surge of inflation since 2023.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againAt the same time, U.S. financial conditions have eased due to the stock market’s rally on the back of what Shah called a “once-in-a-generation AI transformation.” The flood of investment spending on the technology is also adding fuel to the pace of growth.Citadel’s model suggests the Fed’s current rate is near the neutral level that neither stimulates growth nor constricts it. He said that stance is “inconsistent” with market pricing indicating that the economy will expand at a solid pace.Former New York Fed President Bill Dudley on Tuesday told Bloomberg Television’s Surveillance that the central bank is in danger of losing credibility as an inflation fighter given that it has been above the two per cent target since the end of the pandemic. Recently, the pace has only accelerated, with the consumer price index climbing 3.8 per cent in April from a year earlier.Fed officials have already turned more hawkish. A majority of policymakers have warned that the Fed may need to consider raising rates if inflation remains persistently elevated, according to minutes from the central bank’s April meeting.Interest-rate swaps show that it’s unlikely to increase rates until late October at the earliest, though a quarter-point hike is seen as virtually certain by early next year. Bond yields have also jumped sharply since late February amid renewed concerns about inflation.The bond market “is awakening to the reality of a hot economy with risks of a classic demand-induced inflation process,” Shah wrote.President Donald Trump has repeatedly criticized the Fed for not cutting interest rates more deeply. The rise in inflation, however, is complicating the job for Fed Chair Kevin Warsh, who Trump appointed to lead the bank and who has a “presumed goal” of avoiding a hiking cycle, Shah said.Recent data suggest the energy shock is beginning to feed into broader price-setting behaviour, while consumer inflation expectations “are moving in the wrong direction,” he wrote.Moreover, the labour market is showing signs of re-accelerating rather than cooling, he said. He said weekly ADP data suggest that private-sector hiring is running at a pace that, if sustained, is consistent with 170,000 to 180,000 monthly job gains.Fed officials have acknowledged that breakeven payroll growth — the pace needed to keep unemployment steady — may now be close to zero because of the crackdown of immigration. Therefore, the current pace of job creation risks reigniting wage pressures, he said.“In that scenario, rate hikes would become difficult for any Fed Chair to avoid,” Shah wrote. 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