NEW YORK — In a departure from broader market expectations, Bank of America (BofA) Global Research announced on Monday, June 22, 2026, that it now anticipates the Federal Reserve will implement three interest rate hikes throughout the remainder of 2026. The forecast, which marks a significant shift from the bank’s previous position of expecting no change, signals a more hawkish outlook driven by resilient economic data and a pivot in central bank strategy under Chair Kevin Warsh.
The Forecast: 75 Basis Points of Tightening
BofA analysts, led by economist Aditya Bhave, now expect the Federal Reserve to enact 25-basis-point increases in September, October, and December. This trajectory would elevate the federal funds rate to a range of 4.25–4.50%. Following this series of hikes, the bank predicts the Fed will maintain a hold position throughout 2027, as inflation is expected to remain "sticky," preventing real policy rates from becoming overly restrictive.
This assessment stands in stark contrast to broader financial market sentiment. According to LSEG data, markets are currently pricing in approximately 42 basis points of tightening for 2026, positioning BofA among a minority of brokerages including BNP Paribas and Macquarie that anticipate a more aggressive hiking cycle.
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Drivers of the Hawkish Pivot
The bank’s revised forecast follows the release of the Fed's June Summary of Economic Projections and recent commentary from Chair Kevin Warsh. Key factors cited by BofA analysts include:
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Inflation Concerns: BofA noted that the Fed's "inflation problem has gotten unambiguously worse," with core PCE inflation potentially reaching 3.5% in May—a figure roughly 70 basis points higher than levels observed one year ago.
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Labor Market Resilience: Contrary to previous concerns regarding a cooling economy, downside risks to the labor market have "dissipated." Analyst Aditya Bhave highlighted that the unemployment rate has remained flat compared to May of the previous year, despite a prior 75-basis-point increase in rates.
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Shift in Fed Strategy: BofA’s analysis suggests that the Fed no longer views labor market tightening as a necessary prerequisite for rate hikes. This was corroborated by the fact that nine policymakers indicated support for hikes in the June projections, even without forecasting a decline in unemployment.
Potential Risks to the Path
While BofA expects a tightening cycle, the firm identified three specific economic scenarios that could derail this plan:
1. A sharp slowdown in payroll growth.
2. Softer-than-expected core PCE prints.
3. A major selloff in equity markets.
Despite these variables, the firm’s current stance suggests that the prospects for interest rate cuts have been pushed further into the future, as the Federal Reserve prioritizes the restoration of price stability under Chair Warsh’s leadership.
