Bank of America Corp. and Goldman Sachs Group Inc. economists now see the Federal Reserve extending its interest-rate hiking campaign for longer than expected on the heels of stronger economic data.
While some of the strength may be due in part to seasonal adjustments, it is "hard to ignore" employment data that point to stronger labor market momentum, Bank of America economists led by Michael Gapen said in a Feb. 16 note. The team is now forecasting a 25 basis-point increase in June and a terminal fed funds rate of 5.25% to 5.5%, compared to previous expectations that rate increases would end in May and peak at a range of 5% to 5.25%.
Investors are upping their bets that the Fed will lift rates higher, and quarter-point rate increases are now fully priced in for each of the central bank's next two meetings in March and May. Markets are now pricing in a 70% chance that the Fed will roll out a third quarter-point hike in June.
