• Inflation and Fed rate hikes are the most bearish potential development for 2026, cited by 45% of fund managers in a November Bank of America survey.
  • Stalling AI investment emerged as the second-largest concern, identified by 26% of respondents.
  • The findings highlight a significant divergence in market sentiment as managers brace for potential policy tightening next year.

A November survey of fund managers by Bank of America reveals deep-seated anxiety about the potential for a hawkish Federal Reserve pivot in 2026, with nearly half of respondents flagging inflation and subsequent rate hikes as their primary market threat.

The survey, which polls institutional investors globally, found that 45% see higher inflation and potential Fed rate hikes as the most bearish development for 2026. This concern significantly outpaced the second-place risk—stalling artificial intelligence investment—which was cited by 26% of managers.

The findings arrive at a delicate economic juncture. While recent inflation readings have shown moderation, settling at 2.4% year-over-year, they remain stubbornly above the Fed's 2% target. The specter of persistent price pressures is compounded by significant new tariff policies, including 25% tariffs on Canada, Mexico, and autos, alongside approximately 55% tariffs on China. Economists at Bank of America have noted that the "bulk of the impact [from tariffs] is still in the pipeline," suggesting inflationary pressures could re-accelerate just as the Fed contemplates its next move.

This creates a complex policy dilemma for the central bank. On one hand, the labor market shows signs of fraying, with announced layoffs surging 80% year-to-date through May compared to the same period in 2024. On the other, if tariffs prove more inflationary than currently anticipated, the Fed could be forced to abandon its expected easing path and instead resume tightening.

Bank of America expects the Fed to "remain on hold this year," according to analysts, but the 2026 outlook is far less certain. The fund managers' overwhelming concern about rate hikes next year suggests a significant cohort of institutional money is positioning for a scenario where the Fed is compelled to fight inflation more aggressively than current market pricing implies.

Attempts to reach spokespeople at Bank of America for additional comment on the survey's implications were not immediately successful.

Correction: An earlier version of this article misstated the percentage of managers concerned about stalling AI investment. The correct figure is 26%.