Citadel Flags Major Rate Hike Risk Amid June FOMC Meeting

The Fed’s interest rate hike odds have surged massively, according to Citadel Securities. Experts attribute it to inflation spreading into more aspects of the U.S. economy amid the Fed’s June Federal Open Market Committee (FOMC) meeting.

Inflation Pressures Surge In US As CPI, PPI Data Hits Record High

In a note to clients, Frank Flight, the Citadel Securities’ Head of Macro Strategy, noted that the inflation environment is growing more favorable to a more restrictive monetary policy. The report added that Citadel believes there is a huge probability for a Fed rate hike as early as September 2026.

The U.S. economy might be on the verge of a “hysteretic equilibrium” in which temporary shocks produce permanent shifts in the inflation process, Flight said. For context, oil prices have fallen since the U.S. and Iran reached an initial accord. However, he noted that inflationary pressures are already cascading throughout sectors other than energy.

“We see a growing risk that the US inflation process is shifting toward a hysteretic equilibrium, in which more sustained price pressures may persist even after the initial energy shock fades,” Flight wrote.

A handful of factors are continuing to fuel the inflationary trend, the Citadel said. These include easy financial conditions, massive supply-chain disruptions, and growth in the labor market.

Moreover, an enormous cycle of artificial intelligence spending amid the Anthropic, OpenAI, SpaceX IPO buzz has weighed on the economy. Citadel estimates that capital expenditures for AI will be around $750 billion in 2026 and $1.25 trillion in 2027.

The note also noted that wage growth was picking up in cyclical industries. Moreover, it highlighted share of core CPI components increased above 3% year-over-year. Meanwhile, the CPI inflation YoY hit a high of 4.2% in May. Also, PPI inflation soared to 6.5% last month, which suggests a growth in inflationary pressures.

Citadel Expects First Fed Rate Hike By September

The Fed under Chair Kevin Warsh will sound much hawkish at its June meeting, per Citadel Securities. Flight thinks policymakers could eliminate any easing bias and release new projections that would include no rate cuts for 2026.

“We think the risks skew to a rate hike at the September meeting,” he said.

Citadel expects at least five of the Fed’s members to hint at future rate increases at the FOMC meeting.

Whilst, the members’ forecasts could show that core PCE inflation will remain above Fed’s 3% threshold throughout the next year. In addition, they expect a slightly lower unemployment rate.

Based on these assumptions, an inertial Taylor Rule structure suggests about 75 basis points of rate hikes throughout 2026, Citadel stated.

“The evidence suggests policy should be moving in a clearly hawkish direction, and we think Warsh will choose to preserve inflation credibility rather than validate the market’s dovish prior,” Flight wrote.

A hawkish Fed stance could present headwinds for Bitcoin and the crypto market as risk appetite shrinks. Citadel is eyeing potential rate increases in September, December 2026 and March 2027. If markets start to price in a likely extended period of tighter money, it could trigger a loss in valuation for crypto as higher interest rates make risk assets less appealing.