BofA expects Fed to deliver 2 more hikes, JPM adds July hike expectation

BofA Global Research now expects two more quarter percentage point interest rate hikes from the U.S. Federal Reserve this year, while JP Morgan sees one more hike in July, after the central bank signaled further raises may be needed.

BofA's new terminal rate forecast stands 5.5%-5.75%, it said in a note on Wednesday. It had earlier expected the terminal rate to be held at the current 5%-5.25% range. JP Morgan sees the rate peaking at 5.25%-5.50%.

The change in forecasts come after the Fed kept its key rate unchanged in the 5%-5.25% range on Wednesday, but signaled two more hikes might be needed in 2023 to tame inflation. The Fed has increased rates by 500 basis points (bps) since starting its tightening cycle in March last year.

BofA expects the central bank to deliver the hikes in July and September this year.

Citigroup moved its June hike expectation to September and maintained its terminal rate expectation of 5.5%-5.75%.

Goldman Sachs held its forecast for

one more hike in July

.

"We think the (Fed's) hint at an every-other-meeting pace means that the FOMC (Federal Open Market Committee) is more likely to consider a possible second hike in November than in September," Goldman economists said.

Morgan Stanley, meanwhile, sees no more hikes and expects the Fed to hold the rate at 5.1% till it undertakes a 25 bps cut in March 2024.

BofA pushed its rate-cut expectation to May 2024, from an earlier expectation of a cut in March.

(Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich and Sonia Cheema)