Bank of America adds a January Fed hike to its forecast as Goolsbee says the Fed has work to do on its credibility

Bank of America has added a 25bps Fed rate hike in January 2027 to its forecast and now expects hikes in December, January and March, according to Newsquawk. Chicago Fed President Austan Goolsbee said the Fed had work to do to reestablish its credibility, Rallies reported, although he did not commit to a rate hike.

Treasury Secretary Scott Bessent said the Fed should not raise rates in response to inflation he attributed to an energy supply shock, Rallies reported.

TWO READINGS OF THE SAME INFLATION

Goolsbee said inflation had spread beyond energy into services and medical care, and pointed to strong demand linked to the AI data centre buildout. He said tariff and oil-price pressures had persisted longer than expected, and that inflation in categories not driven by oil or tariffs remained troubling. According to Newsquawk, he said there had been signs of trouble for several months in a row now.

Bessent said core inflation is still contained and that the Fed should recognise the current situation as an energy supply shock, Newsquawk reported. He warned against over-hiking in response to a shock that is now easing, calling it a noisy number. Bessent argued the Fed should look beyond noisy inflation readings tied to an energy supply shock connected to the Iran war, saying the underlying US economy was strong, Rallies reported.

A HOT OCTOBER AND WALLER'S WARNING

Government figures suggested inflation rose to four per cent in October compared with a year ago, up from 3.7 per cent in September, the Associated Press reported. The consumer price index for October showed a headline increase of 0.4 per cent and core, excluding food and energy, of 0.3 per cent, according to CNBC.

Federal Reserve Governor Christopher Waller said a stronger policy move may be needed if October core CPI inflation came in around 0.3% or higher, similar to the past two monthly readings, and that a 50 basis point hike should be considered at the December meeting. "Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," he said.

Dallas Fed President Lorie Logan said she envisions two more quarter-point hikes, CNBC reported. Boston Fed President Susan Collins said in September that she supported the 25bps rate hike to 3.75-4.00%, according to Newsquawk. At its last meeting in late October, the Fed kept rates unchanged at about 3.9 per cent, the Associated Press reported, and futures tracked by CME Fedwatch showed 90 per cent odds of a hike at the 8-9 December meeting.

COLLINS ON HOUSING AND A SOFTER PPI

Collins spoke at the Boston Fed's 70th Economic Conference on 13 November, crypto.news reported, and did not comment on the outlook for monetary policy, according to Newsquawk. "In the near term, the higher interest rates sometimes needed to cool the economy and keep inflation in check can make homes more expensive to buy and to build," she said.

Collins said monetary policy can have an unusually large influence on housing because construction investment and mortgage demand are sensitive to interest rates, but that ensuring price stability is a long-run benefit for the housing market.

Producer prices rose 0.3% in October against expectations of 0.4%, while core PPI rose 0.3%, matching forecasts, according to Newsquawk. The 10-year yield rose to 5.17%, its highest level since 15 October, Newsquawk reported.

THE TGB VIEW

Bank of America, which ranks 2nd in the TGB Bank Rankings for the Americas with US$3,411.7bn of total assets and a 10.1% return on equity at end-2025, now forecasts the same December, January and March sequence as Deutsche Bank, whose three quarter-point hikes would take the federal funds target range to 4.50% to 4.75%, according to crypto.news. The US banking system's 4,238 FDIC-insured institutions held US$26.5tn of assets at end-June 2026, 64% of it at the 18 institutions above US$250bn. The next dates to watch are the minutes of the October meeting on 18 November, the October PCE inflation report on 25 November and the rate decision on 9 December.

Related: Federal Reserve holds rates at 3.75% to 4% as two policymakers vote for a hike