BofA and Deutsche Bank Simultaneously Raise Forecasts: Fed May Resume Rate Hikes This Year

Keywords: Fed, Rate Hike Expectations, Bank of America, Deutsche Bank, Inflation, US Economy, Wall Street

Introduction

Against the backdrop of the US economy showing stronger-than-expected resilience, re-emerging inflation pressure, and a more hawkish shift in Fed policy statements, Wall Street's assessment of the Fed's monetary policy path is rapidly being revised. Bank of America Global Research and Deutsche Bank have recently changed their forecasts from 'no action this year' to 'rate hikes will resume this year.' This change not only reflects market concerns about inflation prospects but also shows that the Fed's policy focus is shifting from 'preventing economic slowdown' to 'curbing price stickiness.'

Wall Street Expectations Clearly Shift

Bank of America said on Monday that the Fed could raise rates three times in September, October, and December this year, each by 25 basis points, pushing the federal funds rate range to 4.25% to 4.5%. This expectation is the most aggressive among mainstream institutions. Deutsche Bank forecasts one rate hike each in September and December, totaling 50 basis points. The common point is that both have abandoned their previous judgment of 'rates unchanged,' believing that the tightening cycle is not truly over.

This change is not an isolated phenomenon. Although the Fed remained on hold last week, nearly half of policymakers hinted in the latest forecasts that there is still room for rate hikes this year. The market is generally aware that the division within the policy-making body is tilting toward hawks, and behind this change lies the strong performance of the labor market and stalled inflation decline.

Inflation and Oil Prices Become New Pressure Sources

Last fall, the Fed started rate cuts based on weak employment and a temporary easing of inflation, and once believed that factors like tariffs were only short-term disturbances to prices. However, the US economic environment has since changed significantly: the labor market strengthened again, oil prices fluctuated sharply due to geopolitical conflicts, and the downward trend in core inflation clearly slowed.

Bank of America points out that the core PCE price index for May may rise to 3.5%, an increase of nearly 70 basis points year-on-year. More worryingly, inflation pressure is no longer limited to goods but spreading to services. Although housing-related inflation has eased in stages, other core service prices remain stubborn, meaning the path of 'natural decline' the Fed had hoped for is failing. In this context, the cost of continuing to wait is rising.

Fed Faces Two-Way Dilemma

Deutsche Bank believes that the Fed's future rate path has two-way risks. On one hand, if inflation data continues to beat expectations, the FOMC could form a consensus on rate hikes as early as July; on the other hand, if recent energy prices fall and inflation expectations improve, policy urgency may decrease, and the Fed could continue to wait. This uncertainty means that market pricing of the size and timing of rate hikes this year may still fluctuate frequently.

Notably, LSEG data shows that the market currently implies about 41 basis points of rate hikes within the year. In other words, although most investors have not fully accepted the conclusion of 'another rate hike,' price signals are beginning to converge toward hawkish expectations. As more Wall Street institutions raise their forecasts, this trend may strengthen further.

Conclusion

Overall, the simultaneous revisions by BofA and Deutsche Bank indicate that the Fed's policy cycle is entering a new critical phase. For the market, the real risk is no longer 'whether to cut rates,' but 'whether high rates will last longer, or even rise again.' If inflation stickiness persists and employment remains strong, a Fed rate hike resumption is not impossible. In the coming months, inflation data, energy prices, and Fed officials' statements will jointly determine the next direction of US monetary policy and will continue to affect global asset pricing and capital flows.