Double warning: The Federal Reserve should raise interest rates, risking its credibility in fighting inflation

Mars Finance News, May 27 — Citadel Securities stated that amid rising inflation and a persistently overheated economy, the Federal Reserve should adjust its stance as soon as possible, or it may "fall behind the curve." The institution believes that current inflation, rather than the labor market, poses a greater risk to the U.S. economy.

Citadel Securities pointed out that after the Iran-U.S. conflict pushed oil prices higher, the U.S. April CPI increased by 3.8% year-over-year, marking the largest inflation increase since 2023. At the same time, the AI investment boom and a loose financial environment are further stimulating economic growth, with their model showing that current interest rates are close to the "neutral rate," which does not align with market expectations of strong economic expansion.

Former New York Fed President Bill Dudley also warned that the Fed's credibility as an "inflation fighter" is at risk of being lost. He stated that U.S. inflation has been above the 2% target for over five consecutive years, and long-term inflation expectations are rising, with "almost no reason to cut interest rates" at present.

Dudley also mentioned that, against the backdrop of the AI investment boom, expanding government debt, and questions about the Fed's independence, market concerns about runaway inflation are intensifying.