Citadel’s Ken Griffin Just Said the Quiet Part Out Loud About Inflation — and Wall Street Isn’t Going to Like It

Despite heightened volatility, it’s shaping up to be another phenomenal year for Wall Street. This week, we’ve watched the iconic S&P 500 (SNPINDEX: ^GSPC) and growth-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) trek to record highs, with the ageless Dow Jones Industrial Average (DJINDICES: ^DJI) eclipsing 50,000 earlier this year.

While it would appear that nothing can stop this artificial intelligence (AI)-driven rally, Citadel’s Founder and CEO, Ken Griffin, who oversees one of the most profitable hedge funds on the planet (Citadel Advisors), just offered a sobering take for investors.

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Ken Griffin just said the quiet part out loud

On May 5, Griffin was interviewed at the Milken Conference on CNBC’s “The Exchange” by Sara Eisen, fielding questions about the U.S. economy, stock market, and even his real estate decisions in New York. But the aspect of CNBC’s interview that stood out was Griffin’s take on inflation.

Although Citadel’s boss noted that “inflation is not accelerating in a meaningful way at this point in time,” this was his response when probed by Eisen about the possibility of the Federal Reserve raising interest rates:

There’s always a risk of rate hikes when inflation has gone above target, and it’s been persistently about target now, and the labor markets are strong. And there’s signs that the labor market weakness that we were worried about just three or four months ago is largely dissipating.

When this year began, the stock market was trading at its second-priciest valuation in 155 years, according to the Shiller Price-to-Earnings Ratio. The reason such lofty premiums were supported was the prospect of several interest rate cuts by the Fed in 2026-2027.

With these rate cuts in 2026 effectively off the table and inflation notably picking up in March, Ken Griffin’s response to inflation is a sobering, if not uncomfortable, reminder that rate hikes are a real possibility for a historically expensive stock market.

Jerome Powell delivering remarks to reporters following a Federal Open Market Committee meeting.
Outgoing Fed Chair Jerome Powell points the finger at President Trump for above-average inflation. Image source: Official Federal Reserve Photo.

Trump’s actions may force the Fed’s hand

While Griffin was supportive of President Donald Trump’s policies during his CNBC interview, economic data, along with outgoing Fed Chair Jerome Powell, point the finger of above-target inflation squarely at the president.

Powell has repeatedly flagged the price stickiness of Trump’s tariffs in the goods sector as one reason trailing 12-month (TTM) U.S. inflation remains above target.

But the bigger story is how Trump’s actions in Iran are reverberating through the U.S. economy. Iran’s closure of the Strait of Hormuz following attacks by the U.S. cut off about 20% of the world’s crude oil supply.

Though the reaction in energy markets has been swift, it’s the lagging effect of higher energy prices on transportation and production costs for businesses that can hit the U.S. economy even harder. Even if the Iran war ended right now, the inflationary effects of the largest energy supply disruption in history would likely be felt for several quarters.

US Inflation Rate Chart
US Inflation Rate data by YCharts.

According to the Cleveland Fed’s Inflation Nowcasting tool (as of May 5), TTM inflation is projected to rise 26 basis points to 3.56% in April and another 18 basis points to 3.74% in May. That’s up from a reported 2.4% in February, before the start of the Iran war.

If this trajectory continues, it may force the Fed to act, likely signaling the end of the AI-driven bull market.

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Citadel’s Ken Griffin Just Said the Quiet Part Out Loud About Inflation — and Wall Street Isn’t Going to Like It was originally published by The Motley Fool

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