BofA Forecasts Two More Fed Rate Hikes in 2026, Warns Tightening May Continue Until Economy Cracks

Bank of America (BAC) said the Federal Reserve has entered a new rate-hiking cycle and may raise rates at every meeting through year-end, expecting two more hikes in 2026 following September's quarter-point increase, with markets pricing the next move for December. BofA cited two reasons markets may be underestimating the tightening path. First, the U.S. economy remains strong, supporting sticky inflation, with CPI holding at 3.4% year-over-year for two consecutive months. Second, despite President Trump's demands for rate cuts, hiking has become politically advantageous for Fed Chair Warsh, BofA said. BofA economist Aditya Bhave wrote that a hawkish stance now benefits financial markets and boosts Warsh's credibility, calling further hikes an opportunity to cement his legacy and end debate over his political independence. Renaissance Macro's Neil Dutta said Warsh may be more hawkish than investors expect, concluding the hiking cycle is "closer to the beginning than the end" and that Warsh will likely keep raising rates "until the economy breaks."