Signals & Noise: Our case for 3 rate hikes this year
The desk supports the view of three additional 25bp Fed rate hikes in the coming months, as articulated by Aditya Bhave from BofA Global Research. The rationale hinges on persistent labor market strength and elevated core inflation figures, which suggest that current monetary policy remains excessively accommodative. Per the full note source, emerging concerns about the softness in CPI data have not deterred BofA from maintaining this hawkish outlook. This position indicates potential upward pressure on the USD as the market begins to price in a firmer trajectory for interest rates amidst skewed inflation fears.
What the desk is arguing
The desk posits that the Fed is likely to implement three consecutive rate hikes in September, October, and December, totaling 75 basis points. This view is supported by the persistent strength seen in the labor market and the continued elevation in core inflation metrics, which signal that the Fed's current stance may be too lax. According to BofA, even with recent CPI softness, the underlying economic fundamentals justify a tighter monetary policy path.
Supporting this stance, various economic indicators reflect an enduring inflationary environment, with core PCE inflation remaining well above the Fed's long-term target of 2%. Current unemployment rates near historical lows, combined with a tight labor market, further bolster the case for rate hikes to temper demand and inflationary pressures. Aditya Bhave's analysis indicates that expectations are not aligned with the economic realities warranting additional tightening.
Counter to this view, one might argue that the softness in CPI and potential geopolitical uncertainties could sway the Fed towards a more cautious approach, reconsidering the aggressive tightening plan. However, BofA's confidence in persistent inflation suggests a rejection of this alternative understanding.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Three 25bp Fed rate hikes are forecasted for September, October, and December, supported by strong labor data.
- 02Core inflation remains elevated, suggesting the current accommodative policy is insufficient.
- 03Recent softness in CPI data is viewed as a temporary anomaly rather than a trend.
- 04Fed Chair Warsh's stance appears hawkish, reinforcing expectations of necessary tightening.
Market implications
Watch for significant movements in USD pairs as the market adjusts to the anticipated rate hikes, particularly as inflation data is released. Key levels to observe will include resistance around 1.08 for EUR/USD ahead of policy announcements, which could reshape trader positioning.
Risks to this view
A reversal in this outlook could emerge if inflation data unexpectedly softens significantly, prompting the Fed to reconsider its hawkish path. Additionally, any geopolitical risk or financial market turbulence that undermines economic confidence may induce a shift in the Fed's rate hike trajectory.
In this episode of Signals and Noise, Aditya Bhave, Head of US Economic Research at BofA Securities, lays out the case for three 25bp Fed rate hikes in September, October, and December. He explains why current policy appears too accommodative given the combination of steady labor markets and elevated core inflation, and why recent softness in CPI data has not changed our view. Aditya also addresses the three most common challenges to our forecast: whether inflation is truly a problem, whether Chair Warsh will ultimately follow through on a hawkish stance, and whether markets are underestimating the amount of tightening needed to meaningfully impact financial conditions.
Along the way, he breaks down the role of tariffs, geopolitical shocks, core PCE inflation, and Fed credibility in shaping the outlook for rates and markets. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. ©2026 Bank of America Corporation.
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