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Investors expected a much simpler economy by now.
Inflation was expected to keep easing, consumers were expected to bend under higher prices, and the next big Fed debate was supposed to be about when rate cuts could begin.
However, Bank of America isn’t telling that story.
The bank sees an economy that still has enough momentum to avoid a classic downturn. According to its mid-year outlook shared with me, spending levels held up, the labor market hasn’t cracked, and growth remains alive and well.
Nevertheless, that resilience is not spreading evenly, and that’s the uncomfortable twist.
The U.S. economy might be strong in the places that matter for inflation but fragile in the places that matter most to households.
That beckons a harder question: What happens when the economy is too hot for relief, but too uneven to call healthy?
What Bank of America said about America’s two economies
Perhaps BofA’s most striking economic call is that the U.S. is essentially running on a couple of different tracks.
In its midyear outlook, the bank described the economy as K-shaped, calling it “reflation for higher income, stagflation for lower income.”
Wealthier households continue to spend at a strong pace, led by stronger balance sheets, asset gains, better job security, and exposure to a market that’s spearheaded by earnings strength and AI investment.
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Conversely, lower-income households continue to absorb the harder side of the cycle, with sticky prices, higher borrowing costs, and renewed gas pressure.
The split is clear in BofA’s card data.
For the week of June 6, lower-income spending was up 5.5% year over year, while higher-income spending rose 6.1%.
But the gap gets much wider at the top: Spending by the top 5% rose 7.8%, while spending by the top 1% jumped 9.0%. On May 30, lower-income spending rose 4.0%, compared with 7.6% for the top 5% and 8.6% for the top 1%.
Simply put, the consumer is not universally robust, and the strongest households are simply strong enough to keep the aggregate data looking healthy.
Why the Fed may have to make the pain worse
Perhaps the most uncomfortable part of BofA’s outlook is that the economy hasn’t weakened enough to justify relief.
In fact, it looks strong enough to create a new rate problem.
BofA sees real GDP growing 2.3% in 2026, with the unemployment rate holding near 4.3%. The same forecast, though, has PCE inflation at 3.5% and core PCE at 3.3%, leaving inflation well above the Fed’s target, even as growth keeps moving.
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