Bank of America now forecasts three Fed rate hikes by year-end and no cuts until 2028, with Thursday's PCE data set to test the inflation outlook
Bank of America has reversed its Federal Reserve outlook, now projecting three consecutive rate hikes totaling 75 basis points before year-end, with no prospect of cuts until 2028.
The call, outlined in a note published Monday by BofA economist Aditya Bhave, puts the bank among Wall Street's most hawkish major forecasters.
Bhave expects 25-basis-point increases in September, October, and December, which would lift the federal funds rate from its current 3.5%–3.75% range to 4.25%–4.50%.
The revision follows the Federal Open Market Committee's (FOMC) June meeting, the first chaired by new Fed Chair Kevin Warsh, which delivered a more hawkish posture than many had anticipated.
As previously reported, Warsh withheld his own dot plot submission at the June FOMC meeting, citing longstanding reservations about the Summary of Economic Projections process, even as nine of the 18 participating policymakers signaled at least one rate hike this year.
Marty Green, Principal at Polunsky Beitel Green, discusses why a more flexible Federal Reserve approach could help the central bank respond to economic changes while influencing the outlook for mortgage rates and housing markets.https://t.co/BQ4G40R39M
— Mortgage Professional America Magazine (@MPAMagazineUS) June 22, 2026
"The Fed's inflation problem has gotten unambiguously worse," Bhave wrote, noting that the labor market has also firmed up, eliminating a key justification for last year's easing cycle.
"Chair Warsh's presser also leaned hawkish," he added. "He repeatedly emphasized the importance of restoring price stability and suggested policy isn't particularly restrictive."
BofA, which raised its Q2 GDP tracking estimate to 2.8% annualized on the strength of a strong May retail sales print, now sees no conditions that would support a cut before 2028.
All eyes on Thursday's PCE data
The next test arrives Thursday, when the Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) price index for May.
BofA projects core PCE — the Fed's preferred inflation gauge — could reach 3.5% year-over-year, nearly 70 basis points above year-ago levels.
Market analysts expect the reading to tick from 3.3% to 3.4%. The Fed's own updated projections raised its 2026 core PCE forecast from 2.7% to 3.3%, with the 2% target not expected to be reached before 2028.
The data follows May's consumer price index coming in at its hottest annual reading in over a year,4.2%, reinforcing the case for a more aggressive Fed stance.
Ongoing instability in the Middle East remains a key variable. Energy prices sustained by the Iran conflict have been a persistent accelerant for inflation throughout 2026.
What this means for mortgage brokers
High mortgage rates have kept the US housing market subdued throughout 2026, with the 30-year fixed rate hovering near 6.5%. Three additional hikes would press long-term bond yields higher still, adding further strain on affordability at a time when inventory is only slowly recovering.
Mike Fratantoni, SVP and chief economist at the Mortgage Bankers Association (MBA) in Washington, D.C., has been direct in his assessment.
"Inflation is too high," he told Mortgage Professional America. "MBA continues to anticipate that the Fed's next move will be a rate hike, and that means mortgage rates are unlikely to drop anytime soon."
Odeta Kushi, deputy chief economist at First American in Washington, D.C., echoed that caution. "The more likely story for the second half of the year is volatility around a higher-for-longer range, rather than a meaningful decline in mortgage rates," she told MPA.
"If inflation remains sticky and investors continue to demand compensation for inflation risk, mortgage rates may stay elevated."
BofA identifies three scenarios capable of derailing the hiking path: a sharp payroll slowdown, a major equity selloff, or materially softer core PCE readings. For now, none appear close to materializing.
"We think the Fed will stay on hold next year," Bhave wrote.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
