BofA aligns with 'Fed done hiking rates' outlook, Barclays anticipates another hike

BofA Global Research has shifted its stance, no longer anticipating a rate hike from the US Federal Reserve, in line with other Wall Street banks. This adjustment follows softer-than-expected October inflation data in the largest global economy.

Recent data revealed that US consumer prices remained unchanged month-on-month in October, a notable slowdown from the previous month's increase. This has fueled the belief among investors that the Fed is likely concluding its rate-hiking cycle, leading to speculation about potential rate cuts starting in May.

BofA, which had earlier predicted a final 25 basis points (bps) hike in December, revised its outlook. The decline in owners' equivalent rent inflation, reflecting the real estate market, and the moderation in core services excluding housing are factors encouraging the Fed to maintain its current stance, as stated in a BofA note dated Tuesday.

"We now think that the hiking cycle is over... The Fed will probably try to leave the door open for more hikes next year at its December meeting, but there are diminishing returns to hawkish rhetoric when its policy choices lean dovish," remarked BofA economists led by Stephen Juneau.

The brokerage envisions the Fed commencing rate cuts in June 2024, with quarterly cuts expected thereafter.

In contrast, Barclays remains an outlier, still expecting another 25 bps hike in January. The bank suggests that a closer examination reveals that the easing in core inflation pressures might be somewhat overstated.

"With data on economic activity and labour markets still carrying a fair bit of momentum, we think there remains a case for an additional rate hike early next year," stated Barclays economists led by Pooja Sriram.

(With Reuters Inputs)