Citadel Securities thinks the Fed could surprise markets with a rate hike this week — bad news for stocks, which are already selling off.

• Citadel argues inflation is sticky and heading higher, not cooling, so the Fed needs to act.
• A rate hike makes borrowing more expensive, which is why stocks are dropping as investors brace for it.
• The case is that a surprise July hike would prove the Fed is serious about killing inflation and independent from political pressure.
• Rising oil prices from the Middle East conflict add to the inflation worry and push the Fed toward acting sooner.
• A weak jobs report and a soft inflation reading are seen as temporary blips likely to reverse.

Outlook: Expect more market jitters as investors weigh whether the Fed hikes in July or waits until September.