Bank of America CEO sees three straight Fed rate hikes starting in September
Bank of America CEO Brian Moynihan expects the Federal Reserve to begin raising interest rates in September and deliver hikes at each of its three remaining meetings this year. “If the data comes in better than expected—as it did last month—I believe they will adjust their view. But for now, they believe three rate hikes would put the Fed in a position to control inflation,” Moynihan said. Moynihan expects inflation to fall to the middle of the 2% range by the end of 2027 before gradually returning to the 2% long-term target. He said inflation had already begun to ease, but price pressures from tariffs and war caused it to rebound. Those effects are now gradually fading, he said. Data released by the Commerce Department last week showed that the personal consumption expenditures price index, the Fed’s preferred inflation gauge, fell 0.1% in June from the previous month. That was its first monthly decline since 2020. The index’s year-over-year increase narrowed to 3.7% from 4.1% the previous month. Core PCE inflation, excluding energy, eased slightly to 3.3% year over year from 3.4%. It rose just 0.1% month over month, below the market’s 0.2% expectation. The cooling in inflation was driven mainly by lower oil prices after the United States and Iran reached a temporary cease-fire agreement. Analysts warned, however, that there remains substantial uncertainty over whether inflation can continue to decline because the U.S.-Iran situation remains volatile. Moynihan said rate hikes would not affect companies’ short-term financing for artificial-intelligence infrastructure. He added that returns from data-center construction are high enough for companies to absorb higher financing costs even if long-term bond yields rise. That suggests Bank of America believes higher interest rates will not derail the current capital-spending cycle in artificial intelligence. In a higher-rate environment, that view could bolster market optimism toward AI infrastructure and semiconductor stocks. Moynihan’s comments add a significant voice to the debate over the Fed’s rate path and make Bank of America the most aggressive investment bank on Wall Street in its outlook for rate hikes. Goldman Sachs and Morgan Stanley, by contrast, both expect the Fed to leave rates unchanged for the rest of 2026. JPMorgan expects just one additional hike this year, in December. Fed hawks grow more vocal At the same time, Fed officials remain sharply divided over the next policy move, but the hawkish voices are growing louder and their statements are becoming more direct. Minneapolis Fed President Neel Kashkari said Wednesday that he believes rates need to rise now to bring down inflation and avoid having to implement larger increases later. He said a small hike as early as September was a possible option but made no commitment to a specific timing. Kashkari was one of three dissenting officials who supported a rate hike at last week’s policy decision. Asked whether three consecutive hikes before the end of the year were possible, Kashkari said it was “not impossible.” If inflation continues to move sideways or worsens, the Fed will have to raise rates gradually, he said. Also on Wednesday, Fed governor Lisa Cook said she was prepared to support a rate hike if inflation data failed to improve, in order to curb persistently elevated price pressures. Kansas City Fed President Jeffrey Schmid said Wednesday that, with inflation remaining too high for more than five years and the labor market appearing broadly balanced, the Federal Open Market Committee’s current policy rate showed no sign of being restrictive. He said a more restrictive policy was needed to bring inflation down to the 2% target.
“If the data comes in better than expected—as it did last month—I believe they will adjust their view. But for now, they believe three rate hikes would put the Fed in a position to control inflation,” Moynihan said.
Moynihan expects inflation to fall to the middle of the 2% range by the end of 2027 before gradually returning to the 2% long-term target. He said inflation had already begun to ease, but price pressures from tariffs and war caused it to rebound. Those effects are now gradually fading, he said.
Data released by the Commerce Department last week showed that the personal consumption expenditures price index, the Fed’s preferred inflation gauge, fell 0.1% in June from the previous month. That was its first monthly decline since 2020. The index’s year-over-year increase narrowed to 3.7% from 4.1% the previous month.
Core PCE inflation, excluding energy, eased slightly to 3.3% year over year from 3.4%. It rose just 0.1% month over month, below the market’s 0.2% expectation.
The cooling in inflation was driven mainly by lower oil prices after the United States and Iran reached a temporary cease-fire agreement. Analysts warned, however, that there remains substantial uncertainty over whether inflation can continue to decline because the U.S.-Iran situation remains volatile.
Moynihan said rate hikes would not affect companies’ short-term financing for artificial-intelligence infrastructure. He added that returns from data-center construction are high enough for companies to absorb higher financing costs even if long-term bond yields rise.
That suggests Bank of America believes higher interest rates will not derail the current capital-spending cycle in artificial intelligence. In a higher-rate environment, that view could bolster market optimism toward AI infrastructure and semiconductor stocks.
Moynihan’s comments add a significant voice to the debate over the Fed’s rate path and make Bank of America the most aggressive investment bank on Wall Street in its outlook for rate hikes. Goldman Sachs and Morgan Stanley, by contrast, both expect the Fed to leave rates unchanged for the rest of 2026. JPMorgan expects just one additional hike this year, in December.
Fed hawks grow more vocal
At the same time, Fed officials remain sharply divided over the next policy move, but the hawkish voices are growing louder and their statements are becoming more direct.
Minneapolis Fed President Neel Kashkari said Wednesday that he believes rates need to rise now to bring down inflation and avoid having to implement larger increases later. He said a small hike as early as September was a possible option but made no commitment to a specific timing. Kashkari was one of three dissenting officials who supported a rate hike at last week’s policy decision.
Asked whether three consecutive hikes before the end of the year were possible, Kashkari said it was “not impossible.” If inflation continues to move sideways or worsens, the Fed will have to raise rates gradually, he said.
Also on Wednesday, Fed governor Lisa Cook said she was prepared to support a rate hike if inflation data failed to improve, in order to curb persistently elevated price pressures.
Kansas City Fed President Jeffrey Schmid said Wednesday that, with inflation remaining too high for more than five years and the labor market appearing broadly balanced, the Federal Open Market Committee’s current policy rate showed no sign of being restrictive. He said a more restrictive policy was needed to bring inflation down to the 2% target.