BofA Predicts Fed Interest Rate Hike
Bank of America has revised its US monetary policy forecast, predicting the Federal Reserve will raise interest rates three times this year. The total increase is projected to reach 75 basis points before the US central bank enters a longer pause period. This change in outlook further distances the likelihood of an interest rate cut from market expectations.
BofA's revised forecast is driven by worsening US inflation. The bank estimates that core Personal Consumption Expenditures (PCE) inflation could potentially reach 3.5% in May. This figure is approximately 70 basis points higher than the same period last year, indicating that price pressures are still struggling to return to the Fed's 2% inflation target.
BofA also believes the Fed's reaction pattern is beginning to change. In its latest economic projections in June, several Fed officials maintained the possibility of an interest rate hike, although they did not expect the unemployment rate to decline. This suggests that labor market tightening is no longer a primary requirement for the central bank to raise interest rates, as long as inflationary pressures are still considered excessively high. Fed Chairman Kevin Warsh's stance at last week's press conference further reinforced this view. Warsh repeatedly emphasized the importance of restoring price stability and signaled that current monetary policy was not yet too tight. This statement further convinced the market that the Fed was in no rush to open up room for interest rate cuts anytime soon.
However, BofA believes several factors could derail this rate hike scenario. A sharp slowdown in employment data, lower-than-expected core PCE inflation, or a major sell-off in the stock market could prompt the Fed to hold back. However, for now, the Fed's policy direction is considered increasingly hawkish, potentially strengthening the US dollar, while risk assets and precious metals could face additional pressure. (arl)
Source: Newsmaker.id
