• BofA Global Research now expects quarter-point Fed hikes in December 2026, January 2027, and March 2027, lifting the terminal range to 4.50%–4.75%.
  • The revision follows a third straight upside inflation surprise, with October core CPI up 0.3% and BofA's core PCE tracking estimate at 3.3%.
  • The call implies 75 basis points of additional tightening from the current 3.75%–4.00% range; markets had already fully priced a December move.

Persistent Inflation Forces a Faster Pace

BofA Global Research has added a 25 basis point rate hike in January 2027 to its forecast and now expects increases in December 2026, January, and March, according to a research note released Friday. The revision raises the bank's projected peak federal funds target range to 4.50%–4.75%, up from its previous 4.25%–4.50% estimate, implying three consecutive quarter-point moves totaling 75 basis points from the current 3.75%–4.00% range.

The catalyst was another stronger-than-expected inflation report. October headline consumer prices rose 0.4% month over month, while core prices increased 0.3%, marking a third consecutive upside surprise. "The Fed no longer has the luxury of hiking at a quarterly pace," wrote BofA economist Aditya Bhave. The bank now estimates core PCE inflation—the Fed's preferred gauge—at 3.3% year over year, though that figure is BofA's own tracking estimate, not an official release.

Broader Price Pressures

The revision reflects concern that inflation is broader and more persistent than an isolated energy shock. Higher oil prices linked to the Iran war, U.S. import tariffs, resilient consumer demand, and strong AI-related investment are all contributing pressures, according to people familiar with the matter. BofA points to broad-based price increases and demand linked to consumers and AI investment.

The policy backdrop is important: the Fed raised rates in September for the first time in three years, then held steady in October. BofA's forecast therefore implies a faster pace of tightening than the central bank has signaled. Fed Governor Christopher Waller has suggested a quarter-point December increase, with a larger move possible if price pressures accelerate. BofA, Citi (NYSE:C), and Standard Chartered (LSE:STAN) have acknowledged a stronger case for a half-point increase but say the evidence is not yet sufficient to make that their base case.

Market and Economic Implications

Further tightening could maintain upward pressure on borrowing costs and weigh on rate-sensitive valuations, though some tightening was already anticipated: a December quarter-point increase was fully priced in following the inflation release. BofA strategist Michael Hartnett, in a separate commentary, remained cautious on risk assets, citing the stronger dollar and arguing that conditions needed to ease before a more constructive stance was warranted.

The central trade-off is whether faster tightening restrains persistent price pressure without unnecessarily weakening demand. BofA explicitly says softer data or substantially tighter financial conditions could justify delaying or skipping its final projected increase. The bank's scenarios include a base case of three quarter-point hikes, a less-tightening scenario where the Fed delays or skips the last move, and a more-tightening scenario where stronger wage inflation or large start-of-year price increases push rates above 5%.

Other forecasters are moving in the same direction. Deutsche Bank (NYSE:DB) also expects quarter-point increases in December, January, and March, matching BofA's schedule. Goldman Sachs (NYSE:GS) added a March hike but favors March over January for the additional move, and now expects cuts to begin in December 2027. RBC (NYSE:RY) expects December and March increases, reaching 4.25%–4.50%, with risks tilted toward more tightening.

The next near-term tests identified by BofA are the October Fed meeting minutes and the October retail-sales release, both due the following week. The bank expects the minutes to reveal more disagreement over the October hold than the 10–2 vote alone suggested, and forecasts retail-sales growth of 0.4% excluding autos. "Whether that proves necessary depends on incoming inflation and wage data, demand strength, and how much financial conditions tighten before the Fed acts," Bhave added.

Bank of America (NYSE:BAC), the parent of BofA Global Research, reported third-quarter revenue of approximately $30.0 billion and net income of $6.9 billion, or $0.91 per diluted share. Profit fell 17% year over year, weighed down by a $1.2 billion regulatory penalty and weaker trading results. Excluding the penalty, earnings were $1.08 per share. Net interest income rose 7.9% year over year to $16.6 billion, but management attributed weakness in parts of fixed-income trading to the sharp rise in rates during the quarter—a reminder that higher rates are not unambiguously beneficial for the bank.

As of 9:06 a.m. EST, BofA had not issued any additional comment beyond the research note. A spokesperson for the bank declined to comment on the forecast revision.