Fed December Rate Hike Could Reach 50 Basis Points, Bank of America Warns

Bank of America has warned that the Federal Reserve could raise interest rates by 50 basis points in December. The warning follows hotter-than-expected October inflation data, although the bank still expects a smaller 25-basis-point increase.

Bank of America Sees Risk of 50 Basis Point Fed Rate Hike

Bank of America economist Stephen Juneau said the recent inflation report reinforces the belief that the Fed will adopt another rate hike. He cautioned in a research note on Nov. 10 that the Fed may have to factor in a bigger adjustment.

“The data all but lock in a December hike,” Juneau said, adding that a 50-basis-point move was possible. However, the bank maintained its forecast for a 25-basis-point increase at the December 8–9 Federal Open Market Committee meeting.

The assessment follows Federal Reserve Governor Christopher Waller’s warning about further interest rate increases. If October core inflation were to be 0.3% or above, a larger increase should be considered, Waller said.

October CPI Inflation Exceeds Wall Street Forecasts

Consumer prices rose 0.4% in October, beating the 0.3% expected by economists, according to the Bureau of Labor Statistics. The core inflation rate, which strips out food and energy, rose 0.3%, versus expectations of 0.2%.

The core reading rose for the third month in a row by 0.3%, and price pressures remained in a number of categories. During October, food costs rose by 0.5%, energy by 0.7% and shelter by 0.3%.

Now, Bank of America has revised its forecast of core personal consumer expenditure inflation to 3.3% annually, higher than the Fed’s 2%. Other costs that contributed to continued inflation, the bank found, were electronics, airfares, and hotel expenses.

The Fed, meanwhile, voted to keep the interest rate target range unchanged at 3.75% to 4.00% during its meeting in October. Bank of America challenged this move, noting that the Fed could end up lagging inflation.

Fed December Rate Hike Odds Reach 100%

Following the inflation report, futures markets priced in a December interest rate increase with nearly 100% probability. CME FedWatch data indicated that traders overwhelmingly expected a 25-basis-point increase rather than a larger adjustment.

However, the probability of a 50-basis-point hike rose to approximately 13%, compared with almost no probability before the report. The market pricing reflected growing expectations that policymakers could respond more aggressively to persistent inflation.

Bank of America also warned that further tightening could arrive in January instead of March 2027. The Fed’s next policy meeting is scheduled for December 8–9, while November’s CPI report arrives on December 10.