BofA Warns Two More Fed Rate Hikes May Not Tame Inflation

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3▲3 ▼0Impact / 5
Summary · why it matters

Bank of America is holding to its forecast for two more Federal Reserve rate hikes this year, but warns that even 75 basis points of additional tightening may not be enough to bring inflation back to the Fed's 2% target. In a client note obtained by TheStreet, BofA said it continues to call for two more quarter-point hikes in October and December, following the Fed's unanimous 12-0 FOMC decision on Sept. 16 to raise the benchmark Federal Funds Rate to a range of 3.75% to 4%. The quarterly dot plot released the same day showed a median year-end funds rate of 3.6%, consistent with one additional 25-basis-point hike, and 16 of 18 participating policymakers anticipate at least one more increase before the end of the year. BofA said underlying inflation has been stuck around 2.5% for several quarters because policy isn't tight enough, and that the resilience of the economy changes the Fed's risk/reward calculus, backing Chairman Kevin Warsh's hawkish stance. The bank cautioned that persistent supply shocks from the Iran conflict could force the Fed to choose between an extended inflation overshoot and a hard landing, with CME Group FedWatch showing a 55.4% probability of a quarter-point hike on Oct. 28 and an 89.6% chance of at least one more hike by Dec. 9.

Impact on assets 4

Financials▲ · 1 stocks
Bank of America Corp
BAC
± MixedMonetaryrelevance

BofA holds its forecast for two more Fed hikes and warns 75bp may not tame inflation, a hawkish call that is its own analysis rather than a clear positive/negative for the bank.

Carbon Removal (DAC)▲ · 1 stocks
CME Group Inc
CME
▲ PositiveMonetaryrelevance

CME Group FedWatch data is cited showing rate-hike probabilities, highlighting demand for its rate-futures/derivatives hedging products amid Fed tightening.

Others▲ · 2 stocks
％Effective Federal Funds Rate
EFFR
▲ PositiveMonetaryrelevance

BofA expects two more quarter-point Fed hikes in October and December, pushing the effective federal funds rate higher.

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