Wall Street Shifts: BofA and Deutsche Bank Now Predict Fed Rate Hikes in 2025

In response to a more hawkish-than-expected Federal Reserve, more major Wall Street banks are capitulating and being forced to change their stances.
Bank of America and Deutsche Bank now both expect the Fed to raise interest rates this year.
image description
BofA projects three rate hikes this year, which is currently the most aggressive hike expectation among major global investment banks.


June 23 (Reuters) – Driven by the resilience of the U.S. economy and the more hawkish stance of new Federal Reserve Chair Kevin Warsh, BofA Global Research and Deutsche Bank now both expect the Fed to raise interest rates this year.


This marks a shift for both institutions from their previous forecasts that rates would remain unchanged.


Bank of America said on Monday that it expects the Fed to hike rates three times, with 25-basis-point increases in September, October, and December, raising the benchmark rate from the current range of 3.5%-3.75% to 4.25%-4.5%. This is the most aggressive rate hike expectation among major global investment banks.


Deutsche Bank, in a report released on June 19, forecast two rate hikes this year, each by 25 basis points, occurring in September and December.


The backdrop for both Deutsche Bank and BofA adjusting their expectations is that the Fed held its benchmark rate steady last week, but nearly half of Fed policymakers indicated they expect rate hikes this year.


Amid the more hawkish outlook from Fed policymakers, the U.S. labor market remains strong and inflation concerns are intensifying.


The Fed has held rates steady for four consecutive meetings so far this year, with the last rate cut occurring in December 2025.


Last autumn, the Fed began cutting rates amid weak employment data, while anticipating that President Trump’s tariff policies would only have a short-term impact on inflation. However, since then, the U.S. economic landscape has changed dramatically. The labor market has strengthened, and the U.S.-Iran war has driven oil prices sharply higher.


BofA analysts noted in their report: “The June Summary of Economic Projections and Warsh’s comments indicate that the Fed is far more hawkish than we anticipated.”


“The Fed’s inflation problem has clearly worsened,” BofA stated. “The core Personal Consumption Expenditures (PCE) price index for May may rise to 3.5%, nearly 70 basis points higher than the same period last year. The rebound in inflation is partly attributable to tariffs and other one-off factors. The Fed was inclined to look past tariff effects, but after the latest round of supply shocks, it is losing patience.”
Furthermore, the slowdown in inflation driven by housing factors has largely come to an end, while inflation in other core service sectors remains highly stubborn, Bank of America noted.


Deutsche Bank believes that its rate hike expectations carry two-sided risks.


From a hawkish perspective, the Federal Open Market Committee (FOMC) could reach a consensus on a rate hike as early as July; from a dovish perspective, recent improvements in energy prices and inflation expectations may more persistently diminish the urgency for the Fed to act, the bank stated.


According to LSEG data, the market currently expects the Fed to raise interest rates by approximately 41.2 basis points this year.


More Wall Street Banks Capitulate


Recently, voices on Wall Street predicting that the Fed will raise rates this year have grown louder. Prior to Warsh’s debut last week, strategists at Citadel Securities warned that with inflation broadening and becoming increasingly sticky, the likelihood of the Fed resuming rate hikes in September is rising, with a potential total of 75 basis points in hikes this year. Meanwhile, U.S. asset management giant PGIM expects the Fed to raise rates three times this year.


In the face of a more hawkish-than-expected Fed, more Wall Street banks have capitulated and been compelled to shift their positions. Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan also stated last week that if inflation remains persistently elevated, the Fed may need to raise rates as early as September.


Some investment banks, including BNP Paribas and Macquarie, also expect the Fed to raise rates this year.


Clearly, the ranks of Wall Street investment banks predicting a Fed rate hike this year are growing. However, the majority of global investment banks still expect the Fed to hold rates steady this year.


Analysts at Bank of America and Deutsche Bank also project that the Fed will keep rates unchanged in 2027. Deutsche Bank further forecasts that the Fed will begin cutting rates in 2028, with 25-basis-point cuts in March and June respectively.



Leave a Comment

Your email address will not be published. Required fields are marked *