BofA now sees no Fed rate cuts until 2028

Bank of America has shifted its Federal Reserve outlook, now forecasting three interest rate hikes totaling 75 basis points this year before an extended pause, pushing any prospect of rate cuts well into the future.

Analyst Aditya Bhave said BofA expects the Fed to raise rates by 25 basis points in each of September, October and December, taking the policy rate to 4.25–4.50%. “We think the Fed will stay on hold next year,” Bhave wrote, with inflation likely remaining sticky enough to keep the real policy rate from becoming overly restrictive.

The call reverses BofA’s prior skepticism about the need for cuts, which it now views as having been premature.

On the labor market, Bhave noted that downside risks have “dissipated,” with the unemployment rate flat versus last May when rates were 75 basis points higher.

On inflation, the bank stated that “the Fed’s inflation problem has gotten unambiguously worse,” with core PCE potentially reaching 3.5% in May, nearly 70 basis points above year-ago levels.

BofA also revised its read on the Fed’s reaction function, citing June’s Summary of Economic Projections in which nine policymakers forecast hikes even without expecting unemployment to fall, suggesting labor market tightening is no longer a prerequisite for action.

Fed Chair Kevin Warsh’s press conference reinforced that view, with Bhave noting he “repeatedly emphasized the importance of restoring price stability and suggested policy isn’t particularly restrictive.”

BofA identified a sharp payroll slowdown, soft core PCE prints, or a major equity selloff as the key scenarios that could derail the hiking path.