Fed might raise policy rates to 6% – BofA
2023.02.28 07:35
© Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., on March 19, 2019. REUTERS/Leah Millis
(Reuters) – The U.S. Federal Reserve may hike interest rates to nearly 6%, BofA Global Research said, as strong U.S. consumer demand and a tight labor market would force the central bank to battle inflation for longer.
The number is higher than a peak of 5.4% by September that traders are currently pricing in.
“Aggregate demand needs to weaken significantly for inflation to return to the Fed’s target. Further supply-chain normalization and a slowdown in the labor market will help, but only to a degree,” said BofA in a noted dated Feb. 27.
“Moreover, these processes are taking longer than we and markets were expecting,” it added.
BofA’s hawkish stance comes after it recently added expectation for another quarter basis-point hike in June following similar moves in March and May, for a peak rate expectation of 5.25%-5.5%.
The brokerage expects the U.S. economy to tip into recession by the third quarter of 2023.
