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Bank of America Predicts 6% Fed Funds Rate to Cool Inflation

2 mins
Updated by Geraint Price
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In Brief

  • BoA analyst Michael Hartnett predicts a 6% interest rate hike by year-end.
  • The Fed has so far raised rates to between 5 and 5.25%.
  • The SEC has complicated US crypto companies' business models with recent lawsuits.
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The Bank of America predicts that the Federal Reserve (Fed) could take interest rates up to 6% despite an expected hawkish pause in June.

BoA strategist Michael Hartnett suggests that the Fed may need a 4% unemployment rate and a 6% rate hike to tame inflation.

Rate Pause Likely, but Only for One Month

Hartnett’s prediction comes ahead of the release of the Fed’s Summary of Economic Projections for year-end.

The report will likely predict lower-than-expected unemployment and a Personal Consumption Expenditure (PCE) Index of 4.5% and 3.6%, despite slightly slower job growth last month.

The bank’s preferred inflation gauge, PCE, has not moved much, reaching a 4.3% average over the previous three months.

Despite the poor response of inflation to rate hikes, Fed vice-chairman Philip Jefferson hinted the bank would likely hold rates at 5-5.25% when it meets in June.

Futures markets agree, with the CME’s FedWatch pinning the probability of a rate pause at 78%. 

Interest rates probabilities, CME
CME FedWatch Tool | Source: CME Group

This halt is likely temporary, with revised predictions for July suggesting the Fed could raise rates by a quarter percentage point. The US Consumer Price Index for May, due out on Tuesday, is unlikely to swing odds in favor of a June hike. 

In May’s meeting, the Fed Open Markets Committee increased the Fed funds rate for the tenth consecutive time to between 5 and 5.25%.

Bitcoin and Coinbase Investors Anxiously Await Fed Report

Companies facing notable headwinds in the US may need to work now to ensure they are well-capitalized should rates eventually reach 6%.

Coinbase, the largest crypto exchange in the US, is facing a court showdown with the US Securities and Exchange Commission for allegedly depriving investors of protection through unregistered securities offerings.

If the Fed continues to move the interest rate lever to Hartnett’s 6% prediction, the company’s investors may dispose of shares, causing its stock price to plummet

Read here about how the SEC wants to make crypto like TradFi.

Antoni Trenchev, the CEO of crypto financial services firms Nexo, believes Bitcoin will track equities when the Fed releases its Summary of Economic Projections later this week.

The news will likely cement investors’ belief in Bitcoin’s medium-term prospects and, at least initially, reflect market consensus on where the asset is headed. 

Notably, the SEC did not mention Bitcoin-related products violating US law in its lawsuit against Coinbase. SEC Chair Gary Gensler previously said that Bitcoin was not a security.

The asset fell to $25,500 after last week’s lawsuit, but has since recovered to above $26,000.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...