BofA: Three conditions that would prompt a Fed rate hike in 2026

Bank of America says clients have been asking whether the Federal Reserve could shock markets and raise rates in 2026. Markets have adjusted expectations after Fed Chair Jerome Powell's hawkish remarks at the March meeting, with the CME FedWatch tool pricing a 12% probability of a rate hike in April, up from 0% last week.

BofA isn’t ruling out a hike, but says several specific conditions would have to be met. The bank’s economists still view rate cuts as more likely in 2026, particularly if the oil shock from the ongoing war in Iran subsides. At the same time, they caution that sustained but moderate impacts from the conflict raise the risk of a hike, and they flag a likely “sweet spot” for US crude in the $80–100 range as relevant to policy decisions.

First, the Fed would need confidence that the labor market is holding up. BofA says the unemployment rate would need to stay below 4.5%; the most recent jobs report showed unemployment ticked up to 4.4% in February and the economy recorded a surprise job loss that month.

United States

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