Bank of America CEO Brian Moynihan expects the Federal Reserve to deliver three interest rate hikes this year, yet he believes rising rates will not halt the boom in artificial intelligence infrastructure investment. Meanwhile, several Fed officials have voiced support for swift action to curb inflation, signaling a clear shift toward tighter policy.
In an interview with CNBC, Moynihan forecast the Fed would raise rates once each in September, November, and December. He predicts inflation will fall to the "mid-2% range" by the end of 2027 before gradually declining to the Fed's 2% long-term target. Minneapolis Fed President Neel Kashkari stated it is time to start raising rates gradually, saying, "I'd rather move early and modestly than wait until inflation becomes entrenched and we have to tighten aggressively."
On the market front, CME FedWatch data shows a 56.9% probability of a 25-basis-point rate hike in September, 53.2% in October, and 43.7% in December. As of writing, the S&P 500 ETF (SPY) was up 0.02%, the Nasdaq ETF (QQQ) fell 0.37%, and the Dow ETF (DIA) gained 0.8%.
Path of Three Rate Hikes: Moynihan's Rate Outlook
Moynihan expects the Fed to raise rates three times in a row in September, November, and December to bring inflation under control. "If the data comes in better than expected—like last month, which was better than market expectations—I believe they would adjust their judgment. But for now, they believe three rate hikes are enough to achieve the Fed's inflation management."
On inflation trends, Moynihan predicts the PCE will fall to the "mid-2% range" by the end of 2027 and then converge toward the Fed's long-term target. He noted that inflation had been easing but rebounded due to tariff-related price pressures and geopolitical conflicts, which are now gradually fading. Data released by the Commerce Department last week showed the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose at an annual rate of 3.7% in June. Core PCE, excluding food and energy, rose at an annual rate of 3.3%, down slightly from 3.4% in May, with a 0.1% month-over-month increase.
AI Investment Logic Unchanged: High Rates Won't Stop Data Center Expansion
Despite the rising rate hike expectations, Moynihan believes this will not significantly impact AI infrastructure investment. He pointed out that corporate financing for AI infrastructure is currently dominated by short-term funding, so the direct impact of rising rates is limited. He further stated that the returns from data center construction are high enough that even if long-term bond yields rise, companies can absorb the additional financing costs. This assessment suggests that, in Moynihan's view, the underlying logic of AI capital expenditure does not depend on low interest rates.
Hawkish Voices Grow Within the Fed: Multiple Officials Support Rate Hikes
Hawkish voices within the Fed are intensifying. At last week's Federal Open Market Committee (FOMC) meeting, the Fed voted 9-3 to keep rates unchanged at the 3.5% to 3.75% range, but Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan dissented, each favoring a 25-basis-point rate hike. Kashkari said in a CNBC interview that corporate earnings are strong, and the consumer and labor markets remain resilient. "I look at these data and I don't find evidence that the current monetary policy stance is particularly restrictive." He said the Fed should start raising rates modestly from September to prevent inflation from becoming more entrenched.
Fed Governor Lisa Cook, who voted to hold rates steady last week, adopted a more hawkish tone. In a speech in Alaska, she said, "If I don't see sustained progress on inflation in the near term, I am prepared to act." Cook noted that with inflation having been above target for five consecutive years, the risk that price and wage-setting behavior becomes anchored at high levels is increasing. "We don't have the luxury of waiting in a different environment."
Kansas City Fed President Jeff Schmid (non-voter this year) directly stated that inflation is still too high, bringing it down will require higher rates, and he believes the current monetary policy stance is not restrictive.
Market Pricing: Rate Hike Expectations Already Partially Reflected
The market is already beginning to price in the possibility of multiple rate hikes this year. CME FedWatch data shows a 56.9% probability of a 25-basis-point rate hike in September, 53.2% in October, and 43.7% in December, broadly aligning with Moynihan's forecast of three rate hikes. In the bond market, the iShares 20+ Year Treasury Bond ETF (TLT) was up 0.13%, while the iShares 7-10 Year Treasury Bond ETF (IEF) was down 0.03%, indicating that the market is still digesting the pace of expected rate hikes.
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