Bank of America Global Research updated its outlook on Monday, forecasting 75 basis points of rate hikes by the Federal Reserve in 2026. The firm pointed to continued strength in economic data and growing expectations that the Fed will adopt a more hawkish posture under new Chair Kevin Warsh.
In its note, BofA said it expects the U.S. central bank to implement rate increases in September, October and December, a shift from the bank's earlier projection of no policy changes this year. That stance departs from the consensus reflected in many top brokerages' 2026 outlooks.
The revision follows the Fed's decision earlier this month to keep its benchmark rate unchanged, an outcome that came even as nearly half of Fed policymakers signalled they now see the potential for higher rates this year. BofA's analysts linked that more hawkish policymaker outlook to both a resilient labour market and persistent inflation pressures.
"June Summary of Projections and Warsh’s comments indicate that the Fed’s reaction function is much more hawkish than we thought," BofA analysts wrote in the note.
Markets, by contrast, are assigning a notably smaller probability of tightening next year. Data from LSEG show investors are pricing roughly 42 basis points of hikes in 2026, well below BofA's 75 basis point call.
BofA's forecast also includes three rate hikes this year, after which the analysts expect the central bank to keep interest rates steady through 2027. The team argued that inflation is likely to remain "sticky, keeping the real policy rate from becoming overly restrictive."
Other brokerages are in the minority alongside BofA in assigning earlier or greater odds of rate increases; the note identified BNP Paribas and Macquarie among those that expect the central bank to begin hiking this year.
Context in the note emphasised two key drivers behind BofA's pivot: a more hawkish reaction function signalled by Fed communications and enduring labour-market strength that has not yet alleviated inflation worries. The combination, BofA argued, supports the case for a series of rate moves in the coming months and a cumulative 75 basis points of tightening in 2026.
The bank's view stands in contrast to current market pricing and the broader Wall Street outlook, underscoring a divergence in expectations about the trajectory of U.S. monetary policy over the next year.