Why BofA still sees an October Fed rate hike

Investing.com -- Bank of America analysts said in a note Monday that they still see a strong case for the Federal Reserve to hike in October.

The Federal Reserve's next interest rate decision is scheduled for Wednesday, October 28. BofA notes that the market is currently pricing a 20% chance that the central bank will raise rates.

However, BofA is sticking with its forecast, stating that it believes “September inflation bolsters the case for an October hike.”

The inflation picture has gotten worse since the Sep meeting,” the bank added. “Core PCE could plausibly end the year at 3.4% y/y, especially since the booming nominal economy increases the risk that the energy shock will get passed through.”

BofA highlighted that most of the FOMC was on board with two hikes this year. As a result, it questioned why they would not do the second hike in October and retain the optionality for a third in December.

Overall, the bank believes the decision boils down to “who Chair Walsh really is.”

“We have low conviction as to whether he is serious about bringing a ‘sea change’ to the Fed. But we’re giving him the benefit of the doubt, by retaining our October hike forecast,” BofA concluded.

Original Article

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