BofA Securities Raises Need for 75bp Rate Hike by the Fed

BofA Securities has stated that the U.S. Federal Reserve (Fed) needs to implement additional interest rate hikes. This is based on the assessment that inflation exceeds target levels and financial conditions are not sufficiently tight. Aditya Bhave, an economist at BofA Securities, projected that the Fed will raise rates three times following the July Consumer Price Index announcement. He noted that while the current policy rate is 75 basis points lower than a year ago, the unemployment rate has decreased and inflation has strayed from the target. Bhave emphasized that the Fed should reverse the 75 basis point cut and added that there are no signals indicating that financial conditions are particularly tight. Concerns were also raised that delays in rate hikes could lead to instability in long-term interest rates. He mentioned that with the 30-year bond yield at 5.25% and the 10-year bond yield at 4.70%, if indicators turn hawkish early next year, long-term rates could become unstable. Bhave does not hold a negative view on the labor market, explaining that despite minimal growth in the workforce, there has been an average monthly job increase of about 50,000. He suggested September, October, and December as potential months for rate hikes, but noted that if inflation indicators come in weak, a September hike may not occur. He projected that the first hike would not happen before the midterm elections in October. In assessing inflation, he places importance on core indicators and anticipates rate hikes due to current policies not being sufficiently tight.

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