Bank of America Forecasts Two More Federal Reserve Rate Hikes

Bank of America expects the Federal Reserve to implement two additional interest rate hikes of 25 basis points each in October and December 2026. In its US Economic Weekly report, the bank cited resilient economic growth and persistent inflation pressures as the primary drivers for further monetary tightening.

The bank raised its US economic growth estimate for the third quarter of 2026 to 3.5% on an annualized quarterly basis, attributing the strength to consumer spending, business investment, and AI-related infrastructure spending. Bank of America warned that if the Federal Reserve pauses in October, it risks falling behind the curve, which could push necessary rate hikes into March 2027 and beyond.

Core personal consumption expenditure inflation is projected to remain above the 2% target through 2027. The bank noted that the nominal economy is booming and cautioned that energy shocks could impact core and food prices. Future policy directions may be clarified by the September inflation report and upcoming remarks from Federal Reserve Chair Warsh at IMF meetings.