BofA Exec Still Calls For 3 Fed Rate Hikes After July CPI

Bank of America (BofA) economist Aditya Bhave is holding firm on his forecast for three Federal Reserve rate hikes this year, even after July’s inflation report matched Wall Street’s expectations.

The Consumer Price Index (CPI) rose 0.1% in July, holding the annual rate at 3.4%. The reading came in exactly as economists forecast.

The Fed’s Reversal Faces A Test

BofA reversed its stance in June, abandoning a hold forecast for its original three-hike call. The bank pointed to inflation that had grown steadily worse under new Fed Chair Kevin Warsh.

Bhave argues the Fed cut rates too aggressively last year, guarding against labor weakness that never fully materialized. He says the Federal Open Market Committee (FOMC) now needs to unwind 75 basis points of those cuts.

“We think they need to take back those 75 basis points of cuts. They were hedging against downside risks to labor that didn’t really materialize.”

Aditya Bhave, CNBC

Bhave Downplays The Jobs Scare

Bhave pushed back against the idea that July’s shock jobs report signals real labor market trouble. He called the monthly figures noisy and pointed to seasonal patterns that typically weaken data this time of year.

Averaged over a full year, job growth still runs near 50,000 positions a month, he said. He described that pace as healthy, given a labor force that is barely expanding.

Long-term borrowing costs add urgency to his case. He noted the 30-year Treasury yield sits near 5.25%. That mirrors levels seen after the Fed’s rate hold that backfired on bond markets earlier this year.

Bhave warned that skipping a hike now risks leaving those long-end yields unanchored if inflation reaccelerates. He also expects politics to shape the timing. Bhave doubts the Fed will move in October, just before the midterm elections.

He instead expects the first hike in September, with a possible delayed start in December.

Wall Street Remains Split

Not every economist agrees. Wells Fargo chief economist Tom Porcelli has argued the Fed should hold rates through 2026. That view clashes directly with BofA’s hawkish call.

Traders lean toward caution too. The CME Group’s FedWatch tool tracks trader bets on Fed moves. It showed the odds of a September hike falling to 42% after July’s report.

Bhave remains unconvinced. He argues that even if every remaining data point breaks in the Fed’s favor, core inflation still overshoots target. That overshoot arrives with the labor market already near equilibrium, he said. Whether the central bank agrees may become clear as soon as September.