Bank of America has updated its monetary policy outlook, now projecting that the Federal Reserve will implement two additional quarter-point interest rate increases over the coming months. The revision follows the central bank's decision to hold its benchmark rate steady at its latest policy meeting, a move that was not unanimous.
The bank's economists anticipate a rate hike at the Fed's December meeting and another in March, which would push the federal funds target range to 4.25%–4.50%. They expect rates to remain at that level through the end of 2027. This forecast places BofA among the more hawkish voices on Wall Street, reflecting its view that inflation remains stubbornly above target and that economic activity continues to show resilience.
Fed Holds Rates Despite Dissent
At Wednesday's Federal Open Market Committee meeting, the committee voted 10-2 to maintain the benchmark rate at 3.75%–4.00%, following a quarter-point increase in September. Cleveland Fed President Beth Hammack and Governor Lisa Cook dissented, preferring an immediate hike.
Fed Chair Kevin Warsh noted that economic expansion remains strong, supported by consumer spending, business investment, and job gains. However, he acknowledged that inflation is still elevated, having stayed above the 2% target for nearly six years. Warsh indicated that more information is needed before determining the appropriate policy stance, and he declined to provide detailed forward guidance, stating he does not believe in it outside exceptional circumstances.
BofA interpreted Warsh's lack of commentary on December as dovish, given that markets are pricing in a hike. The bank added that Warsh risks losing relevance unless he is willing to guide or surprise markets. BofA maintains its view of higher front-end rates and a flatter yield curve over time.
Inflation and Growth Data in Focus
Several key economic releases in the coming weeks could influence the Fed's next decision. Thursday's personal consumption expenditures price index, the Fed's preferred inflation measure, and third-quarter GDP figures are immediate indicators. The October employment report, due November 6, and consumer price index data on November 10 will provide further insight into labor market conditions and price pressures.
BofA had been among the few major Wall Street firms expecting a rate hike at the October meeting. After the pause, it shifted the timing but remained hawkish. Market pricing reflects continued tightening expectations, with the probability of a 25-basis-point hike at the December 9 meeting standing at 85.7%, according to CME FedWatch data.
Investors should prepare for interest rates to remain elevated as the Fed focuses on bringing inflation back to its 2% target, said Phil Blancato, chief market strategist at Osaic.
This article is for informational purposes only and does not constitute financial advice.
