US economic growth and interest rate forecasts

Bank of America and other economic analysts have projected continued interest rate hikes and economic resilience in the United States. Initially, Bank of America forecasted two additional quarter-point rate hikes for 2024, specifically in October and December, following a rate increase to a range of 3.75%-4.00%. This outlook was driven by consumer spending rising 6.3% year-over-year, a level that historically suggests the need for further demand restraint to manage inflation.

Subsequent projections extended this outlook into 2026 and 2027. The American Bankers Association’s Economic Advisory Committee expects steady real GDP growth, projected at 2.2% for both the fourth quarter of 2024 and in 2027, supported by business investment in technology and data centers. Despite this growth, inflation is expected to remain above the Federal Reserve’s 2% target.

Bank of America maintained a hawkish stance, forecasting two additional rate hikes in 2026, which diverges from market consensus. Analysts suggested that Federal Reserve Chair Kevin Warsh might pursue these hikes to demonstrate political independence amidst persistent inflation and a strong economy.

By late 2026, Bank of America analysts projected further interest rate increases from the Federal Reserve, suggesting the policy rate could potentially reach near 5% due to persistent inflation, higher energy costs, and tighter financing conditions. The bank noted that upward revisions in inflation-linked bond yields are primarily driven by rising real yields.

In the Eurozone, the bank revised its baseline to a more difficult outlook, estimating inflation at 3.0% for 2026 and 2.5% for 2027. While an October 2026 hike is not the primary scenario, analysts anticipate a potential increase in December 2026 and another possible hike in March 2027, with ECB rate cuts not expected until September 2027.