BofA Sees Two More Fed Hikes in 2026 Despite Market Consensus

Bank of America forecasts two more Federal Reserve rate hikes in 2026. This stands in contrast to market pricing for a single increase. The bank expects the Fed to act after September's 25 basis-point move. Markets currently anticipate a change only at the December meeting.

The bank cites a strong economy as the primary driver. Consumer Price Index data shows inflation at 3.4 percent year-over-year. This level has persisted for the last two months. BofA argues this stickiness supports further tightening.

Political Expediency Drives Hawkish Moves

Rate hikes have become politically expedient for Fed Chair Kevin Warsh. This is true despite President Donald Trump's calls for cuts. Hikes help cap long-term bond yields. Rising oil prices and Treasury buybacks had spooked investors. Surging yields on 10-year and 30-year Treasurys weighed on equities.

A hawkish stance lends credibility to Warsh. Aditya Bhave, US economist at BofA, noted this shift. He wrote that hikes allow Warsh to burnish his legacy. The September hike alleviated concerns about political independence. Additional increases would end that debate permanently.

Analysts Signal Early Stage of Cycle

Neil Dutta of Renaissance Macro Research agrees with this view. He believes Warsh is more serious than investors expect. Warsh warned that high commodity prices signal inflationary pressure. He described the recent hike as removing a dose of accommodation. This suggests the cycle is far from over.

Dutta stated the Fed is closer to the beginning than the end. He sees a reasonable chance Warsh continues until economic conditions change. Warsh has previously been willing to let the labor market slide. His actions indicate he may prioritize the inflation mandate again. BofA expects an extended pause after three consecutive hikes.