NEW YORK — Two major Wall Street research firms now expect the Federal Reserve to raise interest rates later this year, citing a resilient U.S. economy and a more hawkish monetary policy outlook under Fed Chair Kevin Warsh.
The revised forecasts from Bank of America and Deutsche Bank represent a significant shift from their earlier expectations that the central bank would leave rates unchanged through 2026.
Bank of America Global Research said it now expects the Fed to raise its benchmark interest rate by 25 basis points in September, October and December, making it the most aggressive rate-hike forecast among major global brokerages, Reuters reported.
Deutsche Bank, in a research note dated June 19, forecast two quarter-point rate increases this year, one in September and another in December.
The projections run counter to the broader consensus among global brokerages, most of which continue to expect the Fed to keep rates steady throughout the year.
What FOMC Members Projected
The outlooks from both firms follow the Fed’s decision earlier this month to leave its benchmark rate unchanged. However, nearly half of Federal Open Market Committee policymakers indicated in updated projections that they now expect rates to move higher before year-end, Reuters reported.
Analysts pointed to continued labor market strength and persistent inflation concerns as factors supporting a more restrictive policy stance.
“June Summary of Projections and Warsh’s comments indicate that the Fed’s reaction function is much more hawkish than we thought,” Bank of America analysts wrote in a note cited by Reuters.
Deutsche Bank said risks remain on both sides of its forecast.
“On the hawkish side, there is the potential for the Committee to coalesce around a July rate hike,” Deutsche Bank analysts wrote. “On the dovish side, the recent improvement in energy prices and inflation expectations may more sustainably reduce the urgency to act.”
What Markets are Pricing
According to Reuters, financial markets are currently pricing in approximately 41.2 basis points of rate increases this year, based on data from the London Stock Exchange Group.
Other firms expecting the Fed to resume tightening include BNP Paribas and Macquarie Group, both of which are among a minority of brokerages forecasting rate increases.
Despite their expectations for additional tightening in 2026, both Bank of America and Deutsche Bank project that the Fed will leave rates unchanged in 2027.
Looking further ahead, Deutsche Bank expects the central bank to begin easing monetary policy in 2028, forecasting quarter-point rate cuts in March and June as inflation pressures moderate and economic conditions evolve, Reuters reported.
