Key facts
- Bank of America and PGIM predict three Federal Reserve interest rate hikes in 2026.
- These hikes are attributed to persistent inflation, driven by the war in Iran and AI-driven demand.
- Federal Reserve projections indicate no rate cuts are expected in 2026.
- Bank of America forecasts 75 basis points of hikes across September, October, and December.
- Inflation was 4.2% in May, significantly above the Fed's 2% target.
- The economy added 172,000 jobs in May.
Hopes for interest rate relief from the Federal Reserve have diminished, with Bank of America and PGIM now projecting three rate hikes for the remainder of the year. This shift reflects concerns over persistent inflation, driven by factors including the ongoing war in Iran and demand-side pressures from artificial intelligence. Federal Reserve projections from its June meeting also indicate a hawkish outlook, with central bankers signaling that benchmark rates are unlikely to decrease in 2026. Fed Chairman Kevin Warsh, in his first meeting leading the central bank, presided over a unanimous decision to hold rates steady. Despite President Donald Trump's public calls for rate cuts, the Fed faces a dual mandate of price stability and employment growth, with inflation proving stubbornly high. Bank of America's forecast, detailed by analyst Aditya Bhave, includes 75 basis points of interest rate increases spread across September, October, and December. Bhave noted that the Fed's inflation problem has 'unambiguously worse,' and Warsh's hawkish comments post-meeting suggest a possibility of a rate increase as early as the next month. Inflation stood at 4.2% in May, significantly above the Fed's 2% target, while the economy added 172,000 jobs, exceeding expectations.