Bank of America Forecasts Three Fed Rate Hikes in H2 2026, Delays Cuts Past 2028

Bank of America (BofA) has significantly revised its U.S. monetary policy forecast, now predicting the Federal Reserve will raise interest rates three times in the second half of 2026, totaling 75 basis points. This move would elevate the federal funds rate to a range of 4.25% to 4.50%, with no rate cuts anticipated until after 2028. This projection sharply contrasts with current market expectations for future rate reductions. BofA Chief U.S. Economist Aditya Bhave stated the bank expects 25 basis point hikes in September, October, and December 2026. The firm cites a resilient labor market, with unemployment rates stable despite higher rates, and worsening inflation as key drivers. The Core Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, could reach 3.5% in May 2026, approximately 70 basis points higher than a year prior and well above the Fed's 2% target. BofA's analysis suggests the Fed's reaction function has shifted, implying persistent inflation alone could warrant further tightening, even without additional labor market tightening. This hawkish outlook, among the most aggressive on Wall Street, indicates a prolonged high-interest-rate environment, potentially pressuring growth stocks, commercial real estate, and bond markets.