A forecast that runs against market pricing
Bank of America has restated its view that the Federal Reserve will tighten policy in October, according to Investing.com. The projection was set out in a note published on Monday, before the central bank's next rate decision, which is due on Wednesday, October 28. Market pricing, the bank acknowledged, currently gives a rate increase at that meeting only a 20% probability.[S1][S2][S3]
Even so, the institution kept its call unchanged. It leaned on September inflation figures, which it said had reinforced the case for action at the October gathering. The bank also noted that the inflation backdrop had worsened since the September meeting, a shift it treats as material to how officials are likely to read the incoming data.[S1]
Inflation risk and the committee's arithmetic
Looking further out, Bank of America suggested core PCE inflation could reasonably end the year at 3.4% on an annual basis. It flagged the danger that an energy shock feeds through into prices while nominal economic activity remains strong. That combination, in the bank's reading, keeps the inflation problem live rather than settled.[S1]
The bank also weighed the committee's own preferences. Most members of the Federal Open Market Committee, it observed, have backed two rate increases this year. From that starting point, the bank asked why the committee would skip the second increase in October while still holding open the possibility of a third in December.[S1]
The chair as the deciding variable
In the end, Bank of America framed the outcome as a question about Chair Walsh. It said it has little confidence about whether he genuinely intends to bring a sea change to the Fed, and that it is extending him the benefit of the doubt by keeping its October hike forecast in place. The call therefore rests less on data alone than on a judgment about leadership.[S1]
