- Bank of America says a July rate hike would be unprecedented, as the Fed has never raised rates with less than 60% odds priced in since 1994.
- BofA expects the Fed to hold rates in July, despite markets pricing a small chance of a move.
- The bank cites higher oil prices as the main inflation risk and remains bullish on the U.S. dollar.
Bank of America Global Research argues that a Federal Reserve rate hike in July would be an unprecedented move, given the low probability assigned by markets. According to a note from the bank, the Fed has not increased rates in July with less than 60% odds since 1994, making such a move historically rare.
“A July hike would be unprecedented,” the note said, emphasizing that the central bank is likely to hold steady this month. While some market participants have priced in a small chance of a hike, BofA sees the bar as too high.
Instead, the bank identifies higher oil prices as the key inflation risk that could influence the Fed’s future path. Persistent energy cost pressures may keep inflation elevated, but BofA believes the Fed will wait for more data before acting.
On currencies, BofA remains bullish on the U.S. dollar, expecting strength amid inflation concerns and potential policy divergence with other central banks. The dollar’s outlook is supported by the Fed’s relative hawkishness, even if it pauses in July.
The note highlights a cautious but data-dependent stance from the Fed, with BofA’s forecast tilting toward a hold. The firm’s analysis suggests that any move in July would break with historical precedent, reinforcing their base case of no change.
Correction: An earlier version of this article misstated the historical period referenced by BofA. The correct period is since 1994, not 1990.