Given President Donald Trump’s vocal dissatisfaction with former Chair Jerome Powell, there was a relatively widespread expectation that his successor – Chair Kevin Warsh – would usher in a more dovish Fed.
The latest figures on the U.S. economy, however, have led to a sudden, sharp shift in mood, and Bank of America (NYSE: BAC) now even expects additional interest rate hikes in 2026.
Specifically, BofA Global Research revealed on Monday, June 22, that it now expects the federal funds rate to rise by 75 basis points (BPS) before the end of the year. The change will happen across three meetings: in September, October, and November.
According to the analysis, the prediction, which is contrary to the Street consensus, is the result of Warsh’s remarks at the end of the latest Federal Open Market Committee (FOMC) meeting and of continued economic resilience, as exemplified by employment data.
Notably, the inflation rate has also remained significantly above the target for years, leading some critics of America’s central bank to speculate that the institution has given up on price stability.
Looking ahead, Bank of America also believes that the Fed will then keep the rates steady in 2027.
Is Fed Chair Warsh about to defy President Trump?
Elsewhere, should the Fed elect to both raise interest rates and keep them elevated in a protracted timeframe, it would simultaneously serve as a sign the institution has retained its independence.
President Donald Trump has previously been highly critical of former Chair Jerome Powell for not reducing the funds rate faster in the hopes of stimulating the markets and making debt servicing for the U.S. cheaper.
Along with skepticism about Warsh’s ability to resist the commander-in-chief, the feud led to a criminal investigation into the former head of the Fed over an expensive renovation project, and severe criticism from senior bankers such as Janet Yellen.
Yellen – who served as Fed Chair between 2014 and 2018 and later as President Joe Biden’s Treasury Secretary – criticised President Trump’s calls for lower interest rates as something resembling ‘banana republic’ behavior.
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