Bank of America revises its forecast, now expecting three 25 basis point rate increases by December amid inflation and geopolitical concerns.
Bank of America now expects the Federal Reserve to raise interest rates three times this year, each by 25 basis points, in September, October, and December. The shift follows stronger-than-expected April jobs data and persistent core inflation, alongside hawkish signals from Fed officials and geopolitical developments.
Six weeks ago, the firm had revised its outlook from rate cuts to no changes for the remainder of 2024. Markets currently price in only about 41 basis points of hikes, making BofA’s call notably more aggressive. The firm also maintains a bullish stance on the USD, citing expectations of a weaker EUR/USD pair.
BofA argues that relative economic data and real yield differentials will continue to pressure the euro, despite the European Central Bank’s hiking narrative. Sentiment and positioning in EUR/USD have moderated but remain short of 2022 and 2024 extremes.