The Federal Open Market Committee's two-day meeting is commencing Tuesday and is set to conclude on Wednesday, with the Federal Reserve publishing its policy statement and Fed Chair Jerome Powell hosting an eagerly awaited press conference. The prevailing market sentiment firmly expects that interest rates will hold steady within the 5.25% to 5.5% range.

According to CME Group's FedWatch tool, there is an astonishing 99.6% likelihood that rates will remain unchanged. As we look forward to December, market participants exhibit somewhat reduced confidence, yet they still assign a robust 75% probability to the Federal Reserve maintaining its policy stance.

With Wall Street largely expecting the Fed will keep rates steady, one distinct voice stands out.

Read also: Will Treasury's Upcoming Monster Borrowing Plans Outshine Fed's Interest Rate Call?

Bank of America's Contrarian Call On Interest Rates

The Federal Reserve is likely to keep interest rates unchanged, despite strong economic growth and job numbers, according to a note shared Tuesday by rates strategist Mark Cabana and economist Michael Gapen from Bank of America. Yet this view comes with an asterisk.

Powell may reiterate the Fed will proceed carefully and hold a restrictive stance during the press conference, Cabana and Gapen said. Powell may struggle in explaining why a 5.5% federal funds rate is considered restrictive when real GDP is growing at 4.9%, there was a notable uptick in September payrolls, resilient core services and robust retail spending, they said.

Powell could reiterate his stance that further rate hikes could be warranted if there is "additional evidence" of growth surpassing trend levels or if the labor market tightens further, the analysts said.

"We are concerned that the Fed is ignoring rate market signals at their own peril."

Yields on the 10-year Treasury bond, monitored through the US 10-Year Treasury Note ETF (NYSE:UTEN), have surged from 3.85% to 4.85% since the beginning of the year. This surprising increase has occurred even though many on Wall Street had anticipated that bond yields would have dropped due to growing concerns about a recession this year, according to BofA.

The Fed risks lagging behind the curve in terms of real growth and inflation unless it adjusts its approach in response to higher rates, Cabana and Gapen said.

The Bank of America analysts reaffirmed their expectation that there will be another rate increase in December.

Read now: Federal Reserve Preview: Goldman Sachs Says Rate Hikes Finished, Hints At Possible 'Insurance Cuts' In 2024

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