The Wall Street bank stands by October and December hike calls, and warns even that may not be enough to tame inflation
Bank of America is standing by one of Wall Street's most hawkish rate calls of the year. Following the Federal Reserve's unanimous September 16 vote to lift its benchmark rate by 25 basis points to a range of 3.75% to 4%, the bank's economists are forecasting two additional quarter-point hikes before December. That's a view that puts them well ahead of market consensus, which has priced in just one further move.
The updated call comes from Aditya Bhave, US economist at Bank of America, who laid out the case in a client note. Markets currently favour a single December increase. BofA expects both October 28 and December 9 to deliver 25-basis-point moves.
Melissa Cohn of William Raveis Mortgage highlighted that when markets see the Federal Reserve effectively tackling inflation, bond yields can decline, potentially bringing mortgage rates down despite higher benchmark rates.https://t.co/E3CHIOsyLQ
— Mortgage Professional America Magazine (@MPAMagazineUS) September 18, 2026
Why stubborn inflation keeps the pressure on
The core of the argument is durability of price pressure. Consumer prices have held at 3.4% year-over-year for the past two months and Bhave argues underlying inflation has been anchored near 2.5% for several quarters, well above the Fed's 2% target.
"The robustness of the nominal economy both increases the risks of inflation persistence and reduces the risks that hikes will cause a recession," he wrote.
It is a view consistent with the directional shift mortgage professionals have been tracking for months. Mortgage Bankers Association's chief economist Mike Fratantoni, senior vice president at the MBA, identified the Fed's posture shift early.
After a July FOMC vote in which three members dissented in favor of hiking immediately, Fratantoni said: "The three dissents at this meeting, with each of these dissenting members preferring to hike rates now, indicates that the Fed is likely moving into a hiking cycle soon."
Warsh's credibility play and what it means for the market
Bhave also pointed to a political dimension in Fed Chair Kevin Warsh's calculus. Three consecutive hikes would cement Warsh's reputation as an independent operator, insulating him from White House pressure and positioning him to claim credit for any cooling that follows.
"For one, the rate hike alleviates concerns that Warsh is not politically independent," Bhave wrote.
"Additional increases would end that conversation for good."
Neil Dutta, head of economics at Renaissance Macro Research, reinforced that read. Despite Warsh's aversion to forward guidance, Dutta said the September press conference delivered clear hawkish signals, including a warning that commodity prices signal inflationary risk and a description of the September hike as removing only a "dose of accommodation."
"We're closer to the beginning than the end," Dutta said.
The CME Group FedWatch Tool placed the probability of an October hike at 55.4%, with the likelihood of at least one additional increase by December 9 at 89.6%.
For originators managing an already constrained affordability environment, further rate pressure before year-end leaves limited runway for volume recovery.
Fixed-rate mortgages are anchored to Treasury yields rather than the overnight rate directly, but persistent tightening across the system tends to compound pressure on both purchase and refinance activity.
BofA raised a larger structural question alongside its forecast. Even 75 basis points of combined 2026 tightening may not be sufficient to bring inflation to target if supply-driven pressures, including energy shocks, prove more persistent than the base case assumes.
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