Bank of America still expects the Federal Reserve to make a 75-basis-point rate hike at the next meeting, despite the fact that energy prices have fallen.
According to BofA analysts, the June inflation data shows that underlying price pressures remain robust and unacceptably high.
June's Consumer Price Index report showed prices were up 9.1% year-over-year, above the expected 8.8%, which caused traders to bet on a rate hike at the July 26-27 meeting of the Federal Open Market Committee.
US gas prices have fallen for more than 30 days in a row, with the average cost per gallon 44 cents cheaper than a month ago.
Even though President Joe Biden is in the Middle East to boost oil supplies, benchmark crude prices have fallen.
The policymakers voiced that a 75-basis-point hike would be reasonable and aggressive.
"We do not want to make snap policy decisions based on what happened in the report," he said.
BofA's analysts think the Fed will go with a 75-basis point hike.
Then, the bank's analysts said a 50-basis-point hike in September will come next, followed by 25-basis-point hikes afterwards which will bring the target range for Federal Funds to 3%- 4%.
BofA maintains that the US won't be in a technical recession if there is a contraction in the second quarter.
"We see a combination of lags from tighter financial conditions, a persistent inflation tax on household spending, and the willingness of the Fed to acknowledge some pain in labor markets may be necessary to restore price stability as tipping the balance of risks towards recession later this year," BofA said.
As a result of tighter monetary policy and a cooling economy, BofA predicts a negative growth of 2% in 2023.
BofA analysts said that they expect the growth to recover to 1.9% in 2024.
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