Bank of America has revised its outlook and now expects the Federal Reserve to raise interest rates three times in 2026.
The bank projects 25-basis-point increases in September, October, and December, which would lift the federal funds rate from its current 3.50%-3.75% range to 4.25%-4.50%, per Fortune.
This marks a sharp reversal from earlier 2026 outlooks that called for rate cuts. Bank of America cited “unambiguously worse” inflation data, resilient job growth, and recent developments, including energy price pressures, per CNBC.
Current Federal Funds Rate
The Federal Reserve held the target range for the federal funds rate steady at 3.50%-3.75% following its June 2026 meeting, the fourth consecutive hold. This is the first meeting under the new Fed Chair, Kevin Warsh, as previously reported by The Dallas Express.
The effective federal funds rate stood at 3.63% as of June 17, 2026.
Recent Rate Changes
The Fed aggressively raised rates from near zero in 2022 to combat post-pandemic inflation, peaking at 5.25%-5.50% in 2023. It then began easing in late 2024 and 2025 with three 25-basis-point cuts in September, October, and December 2025, bringing the rate to the current 3.50%-3.75% range.
No rate changes have occurred in 2026 so far. The Fed’s June 2026 projections showed nine officials anticipating at least one hike by year-end, with the median projecting a 3.8% rate.
Bank of America’s Revised Outlook
Bank of America economists now expect the Federal Reserve to raise interest rates three times in the second half of 2026. They cite stronger-than-expected job growth, stubborn inflation that hasn’t come down enough, and rising energy prices as the main reasons for the shift. Each rate hike would be a quarter of a percentage point (0.25%).
By comparison, financial markets are currently pricing in only one rate increase of 0.25% by the end of 2026 — a more modest outlook than Bank of America’s forecast.
Impact on the Average American
Higher federal funds rates typically lead to increased borrowing costs across the economy. This affects mortgages, credit cards, auto loans, and business borrowing. Savings accounts and certificates of deposit often see higher yields.
For a typical family, the effects appear in everyday finances.
Consider a household with a $300,000 mortgage, $15,000 in credit card debt, and a $30,000 auto loan. A 0.75-percentage-point rise in rates could add roughly $140–$180 per month in combined interest costs across these debts, depending on loan terms and refinancing timing. Families carrying variable-rate debt or planning large purchases would feel the pinch most quickly.
Higher rates can also slow wage growth and job creation over time while helping moderate inflation by cooling demand.
