"More Hawkish Than Expected"... BofA Says the Fed Will Raise Rates Three Times This Year

[Financial News] Wall Street is increasingly expecting the Federal Reserve System (the Fed) to raise its benchmark rate more than twice this year. Major investment banks that had previously forecast no rate changes are also revising their views one after another, adding to market jitters.
On the 22nd (local time), foreign media reported that BofA recently said in a report that the Fed is likely to raise rates by 0.25 percentage point each in September, October and December this year, for a total of three hikes. That is the most aggressive forecast among major investment banks.
BofA had previously expected no rate changes this year, but changed its stance after the June Federal Open Market Committee (FOMC) meeting. BofA analysts said, "The June FOMC statement and remarks by Kevin Warsh showed that the Fed's response stance is much more hawkish than expected."
The bank pointed to renewed inflation pressure as the key reason. BofA expects the core Personal Consumption Expenditures Price Index (PCE Price Index) to rise 3.5% in May from a year earlier. That would be about 0.7 percentage point higher than a year ago.
Analysts said, "The Fed had tried to view tariff-driven price increases as temporary, but it is losing patience as supply shocks continue," adding, "The disinflationary effect from a cooling housing market has also largely run its course."
Deutsche Bank AG also said in a recent report that it expects the Fed to raise rates twice this year, in September and December. It, too, has shifted away from its earlier forecast of no changes.
Still, Deutsche Bank AG said uncertainty remains high. If inflationary pressure strengthens further, an early hike in July cannot be ruled out. On the other hand, if recent energy prices and inflation expectations stabilize, the need for rate increases could diminish, it said.
The market is also pricing in the possibility of additional Fed tightening. According to data compiled by LSEG, market participants expect about 41.2 basis points of rate hikes this year, just short of two full increases.
Meanwhile, both BofA and Deutsche Bank AG forecast that the Fed will keep rates unchanged in 2027. Some financial firms, including BNP Paribas and Macquarie Group Limited, are also raising the possibility that the Fed could resume rate hikes later this year.

km@fnnews.com Kim Kyung-min Reporter