Bank of America now expects the Federal Reserve to raise rates at each of its next three meetings, adding a January 2027 hike after October's inflation data. The bank lifted its peak forecast for the federal funds rate to 4.5% to 4.75%.
Bank of America now expects the Federal Reserve to raise interest rates at each of its next three meetings, adding a 25-basis-point rate hike in January 2027 to its forecast. The change follows another hot inflation reading.
BofA raises its peak rate forecast
The bank expects hikes in December, January and March, taking the federal funds rate to a peak of 4.5% to 4.75%. It previously forecast two more hikes at a quarterly pace, with a peak of 4.25% to 4.5%.
Economist Aditya Bhave explained the shift. According to BofA's Bhave, "It no longer has the luxury of hiking at a quarterly pace."
October CPI beats expectations again
Consumer prices beat expectations for a third straight month in October, with headline CPI up 0.4% and core CPI up 0.3%. BofA said price gains were broad-based, driven partly by AI and consumer demand.
BofA now tracks core PCE inflation, the Fed's preferred measure, at 3.3% year over year.
Risks and the week ahead
Bhave said risks to the new call are balanced. The Fed could delay or skip the final hike if the data soften or financial conditions tighten significantly, he added. However, a surge in wage inflation or large price increases at the start of the year could push rates above 5%.
BofA also expects next week's minutes from the October meeting to show a deeper split over the decision to hold rates than the 10-2 vote suggested. Investors will also watch October retail sales on Tuesday, which BofA expects to rise 0.4% excluding autos.
Source: Investing.com
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