Will the Fed really hike rates 3 times in 2026, per Bank of America?

Fortune reported: “In a note on Monday, BofA changed its forecast and predicted the Fed will raise rates by a quarter point three times this year, lifting the benchmark rate to 4.25%-4.5% from the current 3.5%-3.75% range.”  

I will look at the case for each side of this idea and the market will decide the rest, as the 10-year yield is currently trading at 4.51% even with oil prices below $74. Remember, my view since May 25: if the Iran conflict is truly over, the 10-year yield should be trading around 4.46%-4.48%, and then the market will work off the economic data.

My view on the 10-year yield and Fed rate hikes

The Fed hiking rates three times in 2026 seems a bit too aggressive to me, given that the conflict in Iran is over. However, taking away all the rate cuts that the market had priced in to start the year seems right, given that the labor data has improved over the last few months. Core inflation had been picking up before the conflict, so any rate cuts are off the table, even after the conflict ended. The conflict ending removed the worst-case scenario. However, for now, I have one rate hike planned for 2026.

The case for 3 rate hikes in 2026

To me, Bank of America believes the Fed should reverse all the rate cuts it made last year — which would mean the Fed hikes the Fed funds rate three times by 0.25% in 2026.

The labor data has improved for the Fed, as they have consistently said the lower job growth is primarily driven by a lower labor-force growth. As long as job growth is above 33,000 a month and the breadth of job growth is picking up, the Fed’s view is that it should reverse all the rate cuts last year. So, with inflation above target and labor data better, this is Bank of America’s new take. 

This is a very plausible argument, since the Fed said it would wait for tariff-related inflation to wind down and make sure the labor market doesn’t worsen. With inflation stronger and labor data improving, three rate hikes in 2026 isn’t as crazy as it sounds. The one knock against this, even from the more Fed-hawkish members, is that they stressed that higher oil prices and a longer-lasting conflict would make them more hawkish. This has obviously changed recently.

The case for 0-1 rate hike in 2006

While inflation is stronger than anticipated, the Fed’s recent aggressive stance was based on the conflict lasting longer than expected. Since they’re making the rules here, I would go with their take over Bank of America.

Also, the market and the Fed both agree that rate cuts are off the table; however, no market indicators are signaling three rate hikes in such a short time. The labor data, while improving, is not accelerating at a rate where wage growth falling the past few years is heading higher. Because the Iran conflict has ended and oil prices are down, it’s more believable that we get no rate hikes to one rate hike in 2026.

Conclusion

Notice that there is no mention of rate cuts above from me, the marketplace, the Fed or Bank of America. While some Fed officials have discussed rate cuts down the line, they would need to be more vocal, as the conflict clouded the rate-cut decision in 2026. This has obviously changed recently, but it’s safe to say rate cuts are just off the table at this point. 

Yes, this is where we are at — even with the new Fed chair, Kevin Warsh — because first, the labor market has improved; second, inflation was stronger than what people anticipated before the conflict started, and third, now if the conflict has truly ended and we can keep oil prices between $67-$82 dollars, then the worst-case scenario with inflation is gone.

Over the next few weeks, let’s see what Fed governors say about the conflict ending and oil prices being much lower. This was a big reason for them to turn hawkish. If they sound more dovish due to the conflict ending, I would weigh their takes over any Wall Street firm.