Bank of America Predicts Fed Rates Could Hit 6% Despite June Pause

The Bank of America (BoA) has made a bold prediction, suggesting that the Federal Reserve (Fed) may increase interest rates to 6%, despite an anticipated pause in June. BoA strategist Michael Hartnett believes that the Fed will require a 4% unemployment rate and a 6% rate hike to effectively control inflation. This prediction has emerged prior to the release of the Fed’s Summary of Economic Projections for year-end. Although a rate pause seems likely, it may only be temporary.

Hartnett’s Prediction and Expected Economic Projections

Hartnett’s forecast indicates that the Fed may need to achieve a 4% unemployment rate and implement a 6% rate hike in order to combat inflation effectively. The upcoming release of the Fed’s Summary of Economic Projections for year-end is expected to reveal lower-than-anticipated unemployment figures and a Personal Consumption Expenditure (PCE) Index of 4.5% and 3.6%. Despite slightly slower job growth last month, the PCE, which is the bank’s preferred inflation gauge, has remained relatively stable, averaging 4.3% over the previous three months.

Likelihood of Rate Pause and Future Outlook

Fed vice-chairman Philip Jefferson hinted at the likelihood of the bank maintaining rates at 5-5.25% during the June meeting, despite the underwhelming response of inflation to previous rate hikes. Futures markets, such as CME’s FedWatch, indicate a 78% probability of a rate pause. However, it is important to note that this pause is likely to be temporary, as revised predictions for July suggest a potential quarter percentage point rate increase. The upcoming release of the US Consumer Price Index for May is unlikely to favor a rate hike in June.

Implications for Bitcoin and Coinbase Investors

Companies operating in the US should prepare for potential challenges if interest rates eventually reach 6%, ensuring they have sufficient capitalization. One such company is Coinbase, the largest cryptocurrency exchange in the US, currently embroiled in a legal battle with the US Securities and Exchange Commission (SEC) over allegations of conducting unregistered securities offerings that deprived investors of protection.

If the Fed follows Hartnett’s prediction and continues to raise interest rates, investors in Coinbase may be prompted to sell their shares, leading to a significant drop in the company’s stock price. Antoni Trenchev, the CEO of crypto financial services firm Nexo, believes that Bitcoin will closely track the equity market’s response to the Fed’s upcoming Summary of Economic Projections. The release of this report is likely to reinforce investors’ confidence in Bitcoin’s medium-term prospects and initially align with market consensus regarding the asset’s direction.

Conclusion

Despite expectations of a pause in June, the Bank of America predicts that the Federal Reserve may raise interest rates to 6% in the future to combat inflation effectively. BoA strategist Michael Hartnett emphasizes the importance of a 4% unemployment rate and a 6% rate hike to achieve this goal. While the release of the Fed’s Summary of Economic Projections for year-end will likely reveal lower-than-expected unemployment figures, the market consensus suggests a temporary pause in rates. However, companies and investors, particularly those involved in cryptocurrency like Coinbase, should remain vigilant and prepare for potential challenges if rates reach 6%.

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