- Bank of America now expects three rate hikes this year, reversing its prior no-change forecast.
- The shift reflects strong economic data and a hawkish Fed under Chair Warsh.
- Kalshi markets show a 25% chance of a July hike, with 76% odds of a hold and 2% for a cut.
Hawkish Turn
Bank of America Global Research has flipped its Federal Reserve outlook, now anticipating three rate hikes this year, according to people familiar with the matter. The revision marks a sharp reversal from its previous forecast of no changes, driven by resilient economic data and a more hawkish stance under Chair Warsh.
"The data has been too strong to ignore," a BofA analyst said, speaking on condition of anonymity. The firm now sees the Fed tightening further to combat persistent inflation.
Market Uncertainty
Despite the hawkish shift, markets remain divided. On Kalshi, a prediction market platform, traders price a 25% probability of a July hike, while 76% expect a hold and 2% a cut. This dispersion underscores the uncertainty surrounding the Fed's next moves.
"The market is still skeptical about the pace of tightening," noted a strategist at a rival bank. "But BofA's call adds weight to the view that rates may stay higher for longer."
Implications
The revised forecast could ripple through bond and equity markets, raising borrowing costs and pressuring risk assets. Consumers and businesses may face higher loan rates, while housing and small business sectors could feel the pinch.
Efforts to reach BofA for further comment were unsuccessful.
Correction: An earlier version of this article misstated the Kalshi probabilities. They have been updated.