Bank of America Global Research added a 25 basis point Federal Reserve rate hike in January 2027 to its forecast, projecting consecutive increases at the December 2026, January and March policy meetings. The revision follows Thursday’s continued Treasury selloff, which pushed the 2 year yield above 4.8% as 2 to 5 year yields rose at least 10 basis points on the day.

The bank had warned a day earlier that the Fed was falling behind inflation after October headline CPI rose 0.4% and core CPI increased 0.3% for a third straight month, estimating annual core PCE inflation at 3.3%. The data lifted the three month annualized core CPI rate to 3.75%, while the three month annualized supercore rate for core services excluding shelter reached 5.45% and the weighted share of CPI components rising faster than 2% annualized hit 76.3%, the highest since August 2022.