Bank of America Merrill Lynch said on Tuesday that the “risk of interest rate hikes in the United States has become increasingly likely”, but said that the central bank was still on track to avoid a hike in December.
“A rate increase in December would likely require a sharp increase in borrowing costs, which would have a negative impact on our global business,” Merrill Lynch’s chief financial officer Brian Klaas said in a statement.
“Given that the Fed has not yet raised rates, it is unclear when that will occur.”
Klaas did not specify what the central banks rate would be in December, but he said that there was no “high probability” that rates would rise.
Banks including HSBC, Natixis and Westpac are already struggling to keep pace with high inflation, and the recent fall in the value of the US dollar is having a “ripple effect” on their operations.
Bank of America’s rate hike would be the biggest since 2008, when the Fed raised rates by a quarter point.
Banks in Europe have also been hit by the fall in valuations, with the German bundbank selling its US debt at a discount and the European Central Bank selling its bond holdings at a loss.
The US, meanwhile, is in the midst of a two-year economic slowdown, with an unemployment rate of 5.1% and a housing market still in its infancy.
The central bank has raised rates in the past, only to see them fall before returning.
But Klaes said the Fed had been “very careful” in its decision to keep rates on hold, even as the economy contracted.
“The Fed has made a commitment to the U.S. that we are prepared to hold the rates at an accommodative level,” he said.
The central banks policy committee is set to meet again in November, with a decision on what to do with rates expected in January.