Bank of America Predicts Three Fed Rate Hikes as Inflation Persists

Walter Bloomberg said on X that Bank of America now expects the Federal Reserve to raise interest rates three times this year, a significant shift from its earlier view that rates would stay unchanged. The bank said stronger economic data, stubborn inflation, and recent comments from Fed Chair Kevin Warsh led to the revised forecast.

Bank of America expects the Fed to increase rates by a quarter percentage point in September, October, and December. If those hikes happen, the benchmark rate would rise to between 4.25% and 4.5%, up from the current range of 3.5% to 3.75%.

Why Bank of America Changed Its Forecast

In a note released Monday, Bank of America pointed to last week’s Federal Open Market Committee meeting as a major turning point. Half of policymakers projected future rate hikes, prompting analysts to reconsider their outlook. Besides, Kevin Warsh’s recent comments signaled a tougher stance on inflation than many investors expected.

The Fed kept interest rates unchanged during its latest meeting. However, Bank of America expects policymakers to maintain that stance next month before beginning rate increases in September.

The bank noted that economic conditions have changed significantly since late 2025. At that time, policymakers lowered rates as labor market data weakened. They also believed President Donald Trump’s tariffs would have only temporary effects on inflation. However, employment conditions improved this year while geopolitical tensions pushed oil prices higher.

Markets Weigh Inflation and Policy Risks

Bank of America also highlighted new Fed projections showing several officials support higher rates even without a stronger labor market. Hence, analysts abandoned their earlier assumption that tighter employment conditions would be necessary before further hikes.

Financial markets have already started adjusting to that possibility. The 10-year Treasury yield climbed to 4.497% on Monday. Meanwhile, investors continue watching inflation data closely. The upcoming Personal Consumption Expenditures report arrives on June 24 and could shape expectations for future Fed decisions.

Still, not everyone expects the Fed to act. Alpine Macro strategist Chen Zhao argued that inflation pressures may ease later this year as temporary shocks fade. “The bottom line is that while half of the Fed’s voting members may be signaling their intention to raise rates, the odds of actual tightening remain very low,” Zhao wrote.

Prediction markets show uncertainty. Kalshi data assigns a 76% chance of a July pause and a 25% probability of a rate hike. Similarly, CME FedWatch data suggests policymakers will likely hold rates steady in July, though traders increasingly expect a possible move in September.