- Bank of America has reversed its monetary policy forecast, now projecting three 25-basis-point interest rate hikes by the Federal Reserve before the end of 2026.
- The policy tightening is expected across September, October, and December, which would push the benchmark federal funds target range up to 4.25%–4.50%.
- A combination of sticky inflation and labor market resilience drove the hawkish pivot, coming just a week after the bank predicted the Fed would hold steady.
Bank of America Global Research has delivered a sharp hawkish revision to its macroeconomic outlook, alerting clients that the Federal Reserve will likely execute three consecutive interest rate hikes before the end of 2026. The unexpected pivot represents a complete reversal from the financial institution’s forecast just last week, which had called for the central bank to keep interest rates on hold throughout the remainder of the year.
According to a research note authored by Bank of America economist Aditya Bhave, the bank now models 75 basis points of total tightening distributed across the September, October, and December policy meetings. If realized, the monetary adjustments will lift the benchmark federal funds rate to a target range of 4.25% to 4.50%. This hawkish shift comes as macroeconomic indicators signal that the previous global rate-cutting cycle has effectively concluded, driven by an inflation landscape that Bhave described as having become “unambiguously worse.”
The revised projections follow the first Federal Open Market Committee meeting led by the newly appointed Federal Reserve Chairman, Kevin Warsh. While policymakers opted to leave benchmark interest rates unchanged at that session, the updated dot plot revealed that nine out of 18 FOMC members now anticipate at least one rate increase in 2026. Bank of America notes that Warsh’s introductory press conference leaned heavily hawkish, showing a shifting regulatory reaction function from general risk management toward active supply shock management.
“The data call for hikes,” Bhave stated in the note, highlighting that core Personal Consumption Expenditures inflation is showing persistent strength due to recent supply shocks, tariffs, and sticky services data. The bank expects core PCE inflation to hover around a 3.5% annualized rate. Furthermore, the U.S. labor market has firmed up considerably and second-quarter GDP tracking has been revised upward to a robust 2.8% annualized rate, removing the economic justification for further monetary easing.
The prospect of a tighter monetary regime has immediate implications for global capital flows and digital assets. Anticipated interest rate hikes traditionally act as a substantial headwind for risk-on assets like Bitcoin and Ethereum by restricting overall market liquidity and driving up the yield on risk-free instruments. Polymarket traders have quickly responded to the institutional revisions, launching highly active prediction markets to wager on the exact frequency of Fed adjustments through the end of the year.
Disclaimer: This article is for informational purposes only and does not constitute advice of any kind. Readers should conduct their own research before making any decisions.
