Proactive Investors - Bank of America Corp (NYSE:BAC) (BoA) analysts now forecast that the Federal Reserve will raise interest rates one last time in November instead of September as upside risks to food and energy prices and a resilient economy keep one last hike on the table.
The analysts believe the Fed will hand down one more 25 basis point hike, but the timing was a close call between September and November with the latest data pointing to November.
They wrote in a note to clients that a main driver for their updated forecast was July’s “benign” Consumer Price Index (CPI) report.
“The July CPI print was undeniably encouraging,” they wrote. “From the Fed's perspective, the breadth of disinflation has increased in recent months, with outright deflation in some core goods categories.”
Another factor is that recent Fed speakers have been dovish on balance, the analysts wrote.
“In the last week, three Federal Open Market Committee (FOMC) participants - Goolsbee, Bostic and Harker - suggested that the Fed is done raising rates,” they noted.
“While they are among the most dovish committee members in our assessment, we still think it is noteworthy that they laid out their view so explicitly.”
Finally, a November rate hike would allow the central bank to fine-tune its policy path, according to the analysts.
“The Fed is attempting to fine-tune the policy path as it gets close to the end of the hiking cycle and does not want to short-circuit the business cycle if inflation is already moving towards [its 2%] target,” the analysts wrote.
“Waiting an additional six weeks would give the Fed more time to assess the trajectory of the economy.”
It would also be consistent with hiking at every alternate meeting, which the Fed has already laid out as an option, they added.
The BoA analysts still expect the Fed will start to cut rates in June 2024 at a pace of 25 basis points per quarter.