Bank of America expects three Fed hikes this year, says inflation is getting 'unambiguously worse'

Stubbornly high inflation and an aggressive tone from new Chairman Kevin Warsh will lead the Federal Reserve to raise interest rates three times this year, according to Bank of America. In a note Monday, the bank's economists reversed their position, held as recently as last week. that the central bank would stay on hold this year as it looked through higher prices driven by the Iran war. But after reviewing current conditions and Warsh's comments last week , that call has changed. The bank expects a report later this week on core personal consumption expenditures prices — the Fed's main inflation forecasting tool — to show an annual rate of 3.5%, reflecting contributions from tariffs and other "one-off" price increases. Ultimately, it could mean 75 basis points, or three-quarters of a percentage point, in rate increases to the central bank's benchmark lending rate. "[T]he Fed's inflation problem has gotten unambiguously worse," wrote BofA economist Aditya Bhave. "The Fed was willing to look through the tariffs, but it is losing patience after the latest round of supply shocks. Also, housing-driven disinflation has now mostly run its course, while other core services remain very sticky." The Fed targets inflation at 2% and has missed its goal for five straight years. …