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2026-09-19 01:54:09
Bank of America expects the Federal Reserve to raise interest rates by more than 5%, advising clients to position for higher 2-year yields. Bank of America's strategist team points out that investors need to prepare for the potential risk of the Fed raising the benchmark interest rate above 5%. The team, led by Mark Cabana and Meghan Swiber, states that the current interest rate market still underestimates the potential interest rate level that the Fed's rate hike cycle, which began this week, may ultimately reach. They urge clients to position for further increases in the 2-year US Treasury yield. Current swap market prices indicate that the Fed will implement three more 25-basis-point rate hikes, which would raise the effective federal funds rate to a range of 4.5%-4.75%. However, Bank of America believes that overnight borrowing costs are likely to return to the highs of the 2022-2023 rate hike cycle, when the federal funds target rate reached a high of 5.5%. Bank of America predicts that the 2-year US Treasury yield will rise to 5% this year from approximately 4.7% last Friday, a prediction that differs from current market expectations. The strategy team also noted that Federal Reserve Chairman Kevin Warsh's statement regarding Wednesday's rate hike, which reversed the "some degree of easing," is sufficient to show that Fed officials do not currently believe that monetary policy has become a constraint on the US economy.
