Investing.com -- Bank of America economist Aditya Bhave said in a note Friday markets have “nearly priced out Fed cuts for the year,” and clients are increasingly asking what it would take for the Federal Reserve to hike rates instead.

The bank sees “at least three conditions for the Fed to hike: a stable labor market (u-rate <4.5%), further increases in core inflation (core PCE >3.2%) and Powell as Chair.”

According to BofA, these conditions are most likely to be met if the Iran-related oil shock is “sustained but moderate,” adding that the “sweet spot” for potential hikes would be if WTI stays in the $80–100 range.

Bhave warned that Iran poses upside risks to the inflation outlook and that “PCE inflation remains stubbornly high,” making it difficult for the Fed to justify near-term cuts.

BofA also stated that Chair Jerome Powell’s March press conference had a “hawkish read,” noting he focused heavily on “the inflation overshoot and upside risks to inflation expectations,” while placing less emphasis on downside labor risks.

Powell also underscored “a high degree of uncertainty around the Iran war.”

“Next week is relatively light on the data front. We get construction spending on Mon, S&P manufacturing and services PMIs on Tue, import price indices on Wednesday, and initial claims on Thursday,” the economist wrote. “On Friday we get the final March UMich consumer sentiment print, which we expect to be soft, since it will capture more of the Iran war impact than the preliminary print did.”

BofA added that the combination of sticky inflation and geopolitical risks means the Fed will face a “hard time arguing that the inflation data justify near-term rate cuts.”