Bank of America: Fed’s Inflation Problem ‘Unambiguously Worse’ as It Forecasts 3 Rate Hikes in 2026

Bank of America now expects the Federal Reserve to raise interest rates three times in 2026, reversing its earlier call for the central bank to stay on hold. The shift follows a warning that the Fed’s inflation problem has become “unambiguously worse.”

Bank of America’s economics team made the hawkish call this week, abandoning a forecast it had held as recently as the prior week that the Fed would leave rates unchanged through 2026. The bank now sees three consecutive quarter-point increases at the September, October, and December meetings, which would lift the federal funds rate to a range of 4.25% to 4.5%.

He further added that housing-driven disinflation has now mostly run its course, even though other core services remain “very sticky.”

BofA has argued that the disinflation that helped cool prices in prior years has largely run its course. “Housing-driven disinflation has now mostly run its course, while other core services remain very sticky,” Bhave subsequently wrote, pointing to the persistent price pressures that have frustrated policymakers.

Energy costs tied to the Iran war have added to the pressure, and roughly half of Fed officials have now indicated that rate increases could be appropriate in 2026. Bank of America’s call effectively bets that the hawks will win the internal debate.