Bank of America expects the Federal Reserve to raise interest rates three times in 2026, according to a new forecast from the bank's economics team. The projected moves would mark a clear shift toward tighter monetary policy after a period of rate cuts and steady rates.
Bank of America's rate hike forecast
The three rate increases, each likely a quarter-point, would lift the federal funds rate by three-quarters of a percentage point by the end of 2026. The bank's economists didn't specify the exact timing of the hikes but said the tightening cycle would begin sometime next year.
Tighter policy ahead
The expected rate hikes signal the Fed's effort to keep inflation in check even as the economy slows. Tighter monetary policy typically means higher borrowing costs for businesses and consumers, which can dampen spending and investment. Bank of America's forecast suggests the central bank is prepared to act if price pressures persist.
Investors are already pricing in the possibility of a more aggressive Fed. Stock and bond markets will watch for any signals from Fed officials that confirm or contradict Bank of America's view. The bank's outlook also implies that the Fed sees a need to preempt inflation risks before they take hold.
The exact timing of the rate moves remains unclear, but the forecast sets expectations for a more active Fed in the second half of 2026.
