BofA Predicts Three Fed Rate Hikes This Year, Reversing Last Year's Cuts
Claire Weston
Bank of America now forecasts three 25-bp Fed hikes in 2024, lifting rates back to 4.25%–4.5% and fully unwinding last December's cut — but a prominent dissenter calls the odds of actual tightening 'extremely low.'
What exactly did BofA change?
BofA's previous base case was rates on hold all year. The new call: hikes in September, October, and December — 25 bp each.
That would push the fed-funds target range from 3.5%–3.75% to 4.25%–4.5%.
This means → the easing from the December 10 rate cut would be completely reversed.
What triggered the reversal?
Two catalysts: half of FOMC officials' dot plots now point to hikes, and new Fed Chair Kevin Warsh struck a surprisingly hawkish tone.
At the press conference Warsh did not rule out hikes. He conceded that with capital flooding into markets, he could not call policy "restrictive."
This means → the internal consensus has shifted from "wait and see" to "we may need to act" — and the new chair's stance is the biggest variable.
How bad has inflation gotten?
BofA expects core PCE — prices excluding food and energy — to reach 3.5% year-on-year in May, up nearly 70 basis points from a year ago.
Housing-driven disinflation has largely stalled. Other core-services inflation remains highly sticky.
In plain terms = the Fed used to shrug off price rises as "one-off tariff shocks." Now prices won't come down, and that patience is running out.
Hiking even without weaker jobs — what assumption does that break?
BofA previously assumed the labor market would need to tighten before the Fed would hike.
But FOMC projections show multiple officials expect hikes even though unemployment hasn't fallen.
This means → the Fed's decision scale has tilted from "jobs first" to "inflation first" — if prices stay hot, employment strength alone won't stop a hike.
What does the other side say — will hikes actually happen?
Chen Zhao, chief global strategist at Alpine Macro, argues the odds of actual tightening are extremely low.
His case: the end of the Iran conflict could push oil to $50–60 a barrel, and small-business stress, AI-driven productivity gains, and slowing wage growth would cool inflation on their own.
Zhao also suggests Warsh may be a "strategic hawk" — talking tough to build credibility while preserving room to cut later.
How are markets reacting right now?
On Monday the 10-year Treasury yield rose 4.6 bp to 4.497%, a sign the market is pricing in a hawkish Fed.
Brent crude fell 4% the same day to $77.29 a barrel — weaker oil could itself undercut the case for hikes.
This reflects a market at war with itself: betting on hikes with one hand, and spotting signals that could block them with the other.
Will the Fed really hike three times this year?
BULL
Sticky inflation won't quit
Core PCE at 3.5%, housing disinflation stalled, the Fed's patience is gone.
Officials tipped their hand
Half the FOMC dots point to hikes — even without a drop in unemployment.
New chair sets a hawkish tone
Warsh won't rule out hikes and openly questions whether policy is tight enough.
BEAR
Oil could plunge
End of the Iran conflict may push crude to $50–60, easing inflation on its own.
Hawkishness may be strategic
Warsh talks tough to build credibility, actually preserving room to cut later.
Multiple slowdown forces
Small-business stress, AI productivity gains, and slower wages all argue against hikes.
In plain terms = both sides have a case. The outcome hinges on whether inflation data keep surprising to the upside over the next few months — and nobody can guarantee that yet.
Content is for reference only, not financial advice.