Citadel warned of the risk of a "imminent" Fed rate hike and the "unpopularity" of AI

The US Federal Reserve could be back to raising interest rates "soon" amid mounting inflationary pressures, Citadel Securities said. At the same time, it warned of political risks to the artificial intelligence rally due to the fact that the technology is "unpopular" because of the threat to jobs.

The combination of a massive AI investment cycle, a tighter energy market due to war in the Middle East and a strengthening U.S. labor market raises the risks of accelerating both economic growth and inflation, according to Nohshad Shah, head of EMEA sales at Citadel Securities. His note is quoted by Bloomberg. "The Fed's next move is likely to be a rate hike ... probably happening soon," Shah wrote in the note.

Markets at the end of last week increased the likelihood of a Fed rate hike by 0.25 percentage points before the end of the year after a stronger than expected US jobs report for May. The probability of such a move by the regulator already in September approached 50%, Bloomberg writes. With low unemployment and limited labor supply, any further acceleration in economic growth could push wage growth well above levels compatible with the Fed's inflation target, according to Citadel analysts.

Shah also warned that one of the new risks to markets could be increased political opposition to AI development. According to him, concerns about the technology's impact on employment, energy consumption and inflation are increasingly attracting the attention of politicians in the run-up to the US midterm elections.

"AI is unpopular, inflation is unpopular," Shah wrote. - Unfortunately for markets, the authorities' response to one or both of these issues could lead to a marked cooling of enthusiasm around the AI topic and a broader tightening of financial conditions."

This article was AI-translated and verified by a human editor