Bank of America forecasts two more Fed rate hikes in 2024

Bank of America has maintained its forecast for two additional quarter-point interest rate hikes by the Federal Reserve this year, specifically in October and December. This outlook follows a recent unanimous decision to increase rates to a range of 3.75%-4.00%.

Analysts at the bank suggest that tightening cycles are typically front-loaded and that the Federal Reserve rarely halts after a single increase. The bank points to nominal consumer spending, which has risen 6.3% year-over-year, as a key driver. This level exceeds the 5% threshold historically linked to above-target core inflation, suggesting the central bank may need to further restrain demand to prevent inflation persistence.

While the strength of the nominal economy may lower the immediate risk of a recession caused by rate hikes, Bank of America warns that persistent supply shocks could force a difficult choice between an inflation overshoot and a hard economic landing. The bank's rates strategists believe the market may be underestimating the end of the cycle, suggesting the policy rate could potentially move above 5%.