Bank of America forecasts three Fed rate hikes in 2026

Bank of America has sharply reversed its outlook on Federal Reserve policy, now forecasting three quarter-point interest rate increases this year. The bank expects hikes in September, October, and December, which would raise the benchmark rate to a range of 4.25% to 4.5%. This marks a significant departure from its previous expectation that the central bank would hold rates steady throughout 2026.

The revised forecast, issued on Monday, June 22, is driven by a reassessment of inflationary pressures and labor market resilience. Analysts cited the Federal Reserve's June economic projections and comments from new Chair Kevin Warsh, which indicated a more hawkish policy stance than previously anticipated. Nearly half of Fed policymakers have signaled they now expect rates to rise this year.

Bank of America noted that the Fed's inflation problem has gotten unambiguously worse. The bank expects the core Personal Consumption Expenditures index, the Fed's preferred inflation gauge, to reach 3.5% for May, nearly 70 basis points higher than a year ago. While the Fed had been willing to tolerate price pressures from tariffs, analysts said it is losing patience after the latest round of...