Bank of America lifts its forecast for the Fed’s “terminal” rate after seeing a stronger inflation path

Bank of America has revised its expectations for the Federal Reserve’s policy path, projecting a series of additional rate increases that push its estimate of the Fed’s eventual “terminal” interest rate higher. In a market note published through Yahoo Finance, the bank said it now expects the Fed to raise interest rates at each of its next three meetings, and added another 25-basis-point hike in January 2027 to its forecast.

The bank’s updated view also appears to be tied to a continued inflation environment it described as “hot,” according to the note’s description. The implication is that policymakers may need to stay in restrictive territory longer than previously assumed in order to bring inflation back toward target.

A “terminal rate” is the peak level of the policy rate that central banks aim to reach during a tightening cycle, before eventually pausing and then, later, cutting. Changes to terminal-rate forecasts tend to matter because they influence expectations for borrowing costs across the economy, including mortgage rates, corporate funding, and savings yields.

For markets, the key detail in Bank of America’s revision is not only that it sees additional hikes, but the cadence. The bank’s expectation of a hike at each of the next three meetings suggests it views the Fed as facing limited room to adjust course at the near-term decision points.

Bank of America did not, in the brief market report description, specify the conditions under which it would revisit the timetable. It also did not lay out the full set of assumptions behind its terminal-rate calculation, such as its projected inflation trajectory, unemployment or labor-market dynamics, or the Fed’s reaction function.