Bank of America economist Aditya Bhave is sticking with his forecast for three Federal Reserve rate hikes this year, even after July's inflation report matched Wall Street's expectations. The consumer price index rose 0.1% on the month, putting the annual rate at 3.4%. Bhave argues the Fed cut rates too aggressively last year and now needs to unwind 75 basis points of those cuts.
A reversal that stuck
Bhave reversed his stance in June, abandoning a hold forecast for his original three-hike call. That shift came after months of defending a pause. Now he's doubling down, insisting the Fed overcorrected with last year's easing and must pay the price in tightening.
Why the jobs report doesn't change his mind
Bhave downplays July's jobs report as noisy, pointing to seasonal patterns. He says average job growth of around 50,000 positions per month is healthy. More importantly, he argues that even if every remaining data point breaks in the Fed's favor, core inflation still overshoots the target. That's why he expects the first rate hike in September, with a possible delay to December. He doubts the Fed will move in October because of midterm elections.
Market odds and bond yields
After the July CPI report, CME Group's FedWatch tool showed the odds of a September hike falling to 42%. That's a notable drop from earlier expectations. Meanwhile, the 30-year Treasury yield sits near 5.25%, mirroring levels seen after the Fed's rate hold that backfired on bond markets earlier this year. The bond market is clearly sensitive to any hint of policy missteps.
A dissenting view from Wells Fargo
Wells Fargo chief economist Tom Porcelli argues the Fed should hold rates through 2026. That's a stark contrast to Bhave's three-hike forecast. Porcelli's stance suggests he sees no need for further tightening, while Bhave sees the Fed as having overcorrected with last year's cuts.
The next test comes at the Fed's September meeting. Bhave expects the first hike then, but if the data doesn't cooperate, December remains a possibility. October is off the table due to the midterms. The market will be watching every jobs report and inflation print between now and then.
