Bank of America just flipped its forecast. The bank now expects the Federal Reserve to raise rates three times before year's end, a sharp reversal from its earlier call for no hikes in 2026. That's 75 basis points of tightening, with the central bank targeting moves in September, October, and December to push the federal funds range to 4.25% to 4.50%.
The shift matters because it reflects growing conviction that inflation remains sticky enough to force the Fed's hand. Back in June, the Fed's own projections already hinted at this direction, with the median estimate suggesting at least one rate increase was coming. BofA's three-hike scenario goes further, putting the bank among the more hawkish voices calling the Fed's next moves.
What's driving the change
Economic data has been stubborn. Inflation hasn't fallen as quickly as some hoped, and the labor market keeps humming along stronger than expected. Those two factors together leave Fed officials with limited room to hold steady. Markets are already repricing themselves around this possibility, with prediction markets adjusting odds for rate increases in the coming months. The message is clear: easy money is over, and borrowing costs are heading higher.
The real test comes in the next three Fed meetings. September kicks things off, followed by October and December sessions that will either confirm BofA's call or force another forecast revision. Watch the inflation numbers closely between now and then, along with employment reports. If those stay hot, the Fed has no choice but to act. Any commentary from Federal Reserve Chair Kevin Warsh and other officials will also signal how seriously the central bank is taking the tightening case.
This material is informational only and not investment advice. Rate forecasts can shift based on new economic data and Fed communications.
