Bank of America expects the Federal Reserve to raise interest rates twice over the coming months, revising its forecast after the central bank opted to pause its tightening campaign at Wednesday’s policy meeting.
The bank’s economists now anticipate quarter-point increases in December 2026 and March 2027, which would lift the federal funds target range to 4.25%–4.50%.
BofA expects rates to remain at that level through the end of 2027.
The revised outlook keeps BofA among the more hawkish voices on Wall Street, reflecting its view that persistent inflation and resilient economic activity will require further monetary tightening.
Fed holds rates despite dissent
The Federal Open Market Committee voted 10-2 on Wednesday to maintain its benchmark interest rate at 3.75%–4.00% , following a quarter-point increase in September.
Cleveland Fed President Beth Hammack and Fed Governor Lisa Cook dissented, preferring an immediate quarter-point hike.
Fed Chair Kevin Warsh said economic activity was expanding at a strong pace, supported by resilient consumer spending, robust business investment and solid job gains.
However, he also acknowledged that inflation remains elevated and has stayed above the central bank’s 2% target for nearly six years.
Warsh said officials need more information before determining the appropriate policy stance.
He also rejected the idea of offering detailed forward guidance, saying he did not believe in it outside exceptional circumstances or a crisis.
“He (Warsh) didn’t opine on December, which was dovish given that markets are pricing a hike,” BofA wrote.
“We think he risks losing relevance unless he’s willing to either guide or surprise markets,” the bank added.
The bank retains its view of higher front-end rates and a flatter yield curve over time.
Inflation and growth hold the key
Several economic releases in the coming weeks could influence the Fed’s next decision.
Thursday’s personal consumption expenditures price index, the central bank’s preferred inflation measure, and third-quarter gross domestic product figures are among the immediate indicators investors will watch.
The October employment report, due November 6, and consumer price index data scheduled for November 10 will offer further insight into labour-market conditions and price pressures.
BofA had been among the few major Wall Street firms expecting the Fed to raise rates at its October meeting.
After Wednesday’s pause, it shifted the timing of its forecast but remained hawkish.
Despite the pause, markets continued to anticipate further tightening, especially with the decision on Wednesday not unanimous.
The probability of a 25-basis-point rate hike at the Fed’s December 9 meeting currently stands at 85.7%, according to CME FedWatch data.
“Investors should prepare for interest rates to remain elevated with the Fed focused on bringing inflation back towards its 2% target,” Phil Blancato, chief market strategist at wealth management firm Osaic, told Reuters.
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