The U.S. Federal Reserve may hike interest rates to nearly 6 per cent, BofA Global Research said, as strong U.S. consumer demand and a tight labour market would force the central bank to battle inflation for longer.
The number is higher than a peak of 5.4 per cent by September that traders are currently pricing in.
“Aggregate demand needs to weaken significantly for inflation to return to the Fed’s target. Further supply-chain normalization and a slowdown in the labour market will help, but only to a degree,” said BofA in a noted dated Feb. 27.
“Moreover, these processes are taking longer than we and markets were expecting,” it added.
BofA’s hawkish stance comes after it recently added expectation for another quarter basis-point hike in June following similar moves in March and May, for a peak rate expectation of 5.25 per cent-5.5 per cent.
The brokerage expects the U.S. economy to tip into recession by the third quarter of 2023.