Bofa projects three interest rate hikes in the US in 2026 with price pressure

Bank of America works with a scenario of three increases of 0.25 percentage points in American interest rates between September and December, taking the American base rate to the range of 5% to 5.25%.

Among the factors that support this view are stronger than expected activity data, the persistence of inflation in both goods and services and the stance adopted by the new president of the Federal Reserve, Kevin Warsh, in his first meeting as head of the monetary authority.

If this scenario is confirmed, the expectation is for emerging markets to get worse. Higher interest rates in the United States tend to strengthen the dollar, reduce the flow of resources to countries like Brazil and increase pressure on the exchange rate, making it difficult to control inflation.

BofA's projection is tougher than the market's. Most investors only expect a rise in interest rates this year.

CME Group's FedWatch tool shows that the probability of the Fed ending the year with three interest rate hikes is around 7%.

BofA's chief economist for Brazil, David Beker, recognizes, however, that this scenario has become less likely following the most recent data from the American labor market.

Job creation in June was below expectations, reducing some of the pressure for more intense monetary tightening.

Another factor that could weaken this scenario is the most recent communication from Kevin Warsh. After adopting a tough tone in his debut, the Fed president signaled that the risks to inflation have diminished, although he reaffirmed his commitment to bringing inflation back to the 2% target.

Understand why interest rates fall in the USA and rise in Brazil

Source: CNN