BofA joins ‘Fed done hiking rates’ view; Barclays sees one more

(Reuters) -BofA Global Research no longer expects the U.S. Federal Reserve to raise interest rates, joining other Wall Street banks, following softer-than-expected October inflation data in the world’s largest economy.

Data on Tuesday showed U.S. consumer prices were unchanged in October month-on-month, representing a significant cooling from September’s rise.

This bolstered views among investors that the Fed was probably done raising interest rates, and prompted bets that the central bank could start cutting rates in May.

BofA had previously forecast a final 25 basis points (bps) hike in December.

The drop in owners’ equivalent rent inflation – a gauge of the real estate market – and the cooldown in core services excluding housing, should encourage the Fed to stay on hold, BofA said in a 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,” BofA economists led by Stephen Juneau said.

The brokerage expects the Fed to start cutting rates in June 2024, and deliver a cut every quarter.

CASE FOR A HIKE

While most other Wall Street majors view the Fed as likely done with raising rates, Barclays still expects another 25 bps hike in January.

“A closer look… reveals that the easing in core inflation pressures appears somewhat exaggerated,” said Barclays economists led by Pooja Sriram.

“With data on economic activity and labor markets still carrying a fair bit of momentum, we think there remains a case for an additional rate hike early next year.”