Bank of America now anticipates a rate increase in January alongside an expected move next month, arguing that policymakers are lagging behind price pressures. Financial markets are heavily tilted toward a move, with CME FedWatch data assigning an 89.7% chance to a December hike. Other major lenders including Goldman Sachs and Deutsche Bank have similarly intensified their tightening forecasts. The Federal Reserve previously initiated its first increase in three years this September, lifting rates to between 3.75% and 4.00%.
Key points
Persistent inflation surprises driven by energy costs, tariffs, and AI investments are fo…: Persistent inflation surprises driven by energy costs, tariffs, and AI investments are forcing central bank forecasters to abandon quarterly pacing.
The benchmark policy rate could climb above 5% if upcoming wage gains and annual price ad…: The benchmark policy rate could climb above 5% if upcoming wage gains and annual price adjustments show renewed strength.
Federal Reserve officials are resuming an aggressive posture just months after initiating…: Federal Reserve officials are resuming an aggressive posture just months after initiating their first interest rate hike in three years.
Sources checked by our analysis pipeline: 1
"After October CPI, the Fed looks further behind the curve on inflation," said economists at BofA, led by Aditya Bhave, adding that the central bank can no longer afford to raise rates at a quarterly pace.
Data earlier this week marked a third consecutive monthly upside surprise in inflation, solidifying bets on a December Fed hike, with markets pricing in an 89.7% chance of a 25-basis-point hike and a 10.3% chance of a 50 bp move, per CME FedWatch Tool.
Inflation has been rising on the back of higher oil prices amid the Iran war, US President Donald Trump's import tariffs, resilient consumer demand and strong AI-related investment.
The Fed raised its benchmark interest rate to a 3.75%-4.00% range in September, marking its first hike in three years.
Hawkish comments from Fed policymakers earlier this week also underscored expectations for further policy tightening. Fed Governor Christopher Waller has suggested a 25-basis-point hike next month and a larger increase if price pressures accelerate.
"The Fed might delay or skip the last hike if there's a soft patch in the data or…
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