Bank of America Predicts Three Fed Rate Hikes in 2026

Bank of America’s economics team revised its outlook and now expects three 25‑basis‑point increases to the federal funds rate in September, October and December 2026. Those moves would raise the target range to 4.25%–4.50% from the current 3.50%–3.75%.

Aditya Bhave, an economist at the bank, wrote that “The Fed’s inflation problem has gotten unambiguously worse.” He projected core personal consumption expenditures inflation could reach about 3.5% in May, roughly 70 basis points higher than a year earlier, and attributed the pickup in part to tariffs, one‑off factors and recent supply shocks.

Bhave noted that housing‑driven disinflation has mostly run its course and that prices for other core services remain very sticky. The bank also pointed to energy cost increases tied to the Iran war as an additional upward pressure on inflation.

At the Federal Open Market Committee meeting on June 17, the FOMC left the policy rate at 3.50%–3.75% and indicated further increases might be warranted. New Fed Chair Kevin Warsh referenced “price stability” in his first meeting. About half of Fed officials have signaled that rate increases could be appropriate in 2026.

Bank of America’s forecast assumes the more hawkish officials will carry the day in internal Fed deliberations. The bank noted that higher interest rates generally weigh on risk assets because rising yields reduce demand for non‑yielding instruments such as bitcoin and can drain liquidity from speculative markets.

Not all market participants share the three‑hike view. Some analysts warn the Fed may be reluctant to raise rates sharply given potential risks to economic growth and employment and expect policymakers to weigh those risks when setting the pace of tightening.

The revision is a rapid reversal for Bank of America. The bank had forecast no rate changes through 2026 as recently as last week before stronger‑than‑expected inflation readings and the change in Fed leadership prompted the updated outlook.