In response to a more hawkish-than-expected Federal Reserve, more major Wall Street banks are capitulating and being forced to change their stances.
Bank of America and Deutsche Bank now both expect the Fed to raise interest rates this year.
BofA projects three rate hikes this year, which is currently the most aggressive hike expectation among major global investment banks.
Furthermore, the slowdown in inflation driven by housing factors has largely come to an end, while inflation in other core service sectors remains highly stubborn, Bank of America noted. Deutsche Bank believes that its rate hike expectations carry two-sided risks. From a hawkish perspective, the Federal Open Market Committee (FOMC) could reach a consensus on a rate hike as early as July; from a dovish perspective, recent improvements in energy prices and inflation expectations may more persistently diminish the urgency for the Fed to act, the bank stated. According to LSEG data, the market currently expects the Fed to raise interest rates by approximately 41.2 basis points this year. More Wall Street Banks Capitulate Recently, voices on Wall Street predicting that the Fed will raise rates this year have grown louder. Prior to Warsh’s debut last week, strategists at Citadel Securities warned that with inflation broadening and becoming increasingly sticky, the likelihood of the Fed resuming rate hikes in September is rising, with a potential total of 75 basis points in hikes this year. Meanwhile, U.S. asset management giant PGIM expects the Fed to raise rates three times this year. In the face of a more hawkish-than-expected Fed, more Wall Street banks have capitulated and been compelled to shift their positions. Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan also stated last week that if inflation remains persistently elevated, the Fed may need to raise rates as early as September. Some investment banks, including BNP Paribas and Macquarie, also expect the Fed to raise rates this year. Clearly, the ranks of Wall Street investment banks predicting a Fed rate hike this year are growing. However, the majority of global investment banks still expect the Fed to hold rates steady this year. Analysts at Bank of America and Deutsche Bank also project that the Fed will keep rates unchanged in 2027. Deutsche Bank further forecasts that the Fed will begin cutting rates in 2028, with 25-basis-point cuts in March and June respectively.
