{"id":11047,"date":"2026-07-07T17:31:38","date_gmt":"2026-07-07T17:31:38","guid":{"rendered":"https:\/\/www.fintechpulse8.com\/?p=11047"},"modified":"2026-07-07T17:31:38","modified_gmt":"2026-07-07T17:31:38","slug":"bank-of-america-warns-america-now-has-2-economies","status":"publish","type":"post","link":"https:\/\/www.fintechpulse8.com\/?p=11047","title":{"rendered":"Bank of America warns America now has 2 economies"},"content":{"rendered":"

<\/p>\n

Investors expected a much simpler economy by now.<\/p>\n

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.<\/p>\n

However, Bank of America<\/strong> isn\u2019t telling that story.<\/p>\n

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\u2019t cracked, and growth remains alive and well.\u00a0<\/p>\n

Nevertheless, that resilience is not spreading evenly, and that\u2019s the uncomfortable twist.\u00a0<\/p>\n

The U.S. economy might be strong in the places that matter for inflation but fragile in the places that matter most to households.<\/p>\n

That beckons a harder question: What happens when the economy is too hot for relief, but too uneven to call healthy?<\/p>\n

What Bank of America said about America\u2019s two economies<\/strong><\/h2>\n

Perhaps BofA\u2019s most striking economic call is that the U.S. is essentially running on a couple of different tracks.<\/p>\n

In its midyear outlook, the bank described the economy as K-shaped, calling it \u201creflation for higher income, stagflation for lower income.”<\/strong><\/p>\n

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\u2019s spearheaded by earnings strength and AI investment.\u00a0<\/p>\n

More Tech:<\/strong><\/p>\n

    \n
  • Microsoft may be done making Xbox cheap<\/strong><\/li>\n
  • IBM handed two major wins within 24 hours<\/strong><\/li>\n
  • SpaceX\u2019s 32% crash may force Musk into radical move<\/strong><\/li>\n<\/ul>\n

    Conversely, lower-income households continue to absorb the harder side of the cycle, with sticky prices, higher borrowing costs, and renewed gas pressure.<\/p>\n

    The split is clear in BofA\u2019s card data.\u00a0<\/p>\n

    For the week of June 6, lower-income spending was up 5.5%<\/strong> year over year, while higher-income spending rose 6.1%<\/strong>. <\/p>\n

    But the gap gets much wider at the top: Spending by the top 5%<\/strong> rose 7.8%<\/strong>, while spending by the top 1%<\/strong> jumped 9.0%<\/strong>. On May 30, lower-income spending rose 4.0%<\/strong>, compared with 7.6%<\/strong> for the top 5% and 8.6%<\/strong> for the top 1%.<\/p>\n

    Simply put, the consumer is not universally robust, and the strongest households are simply strong enough to keep the aggregate data looking healthy.<\/p>\n

    \n

     Bank of America warns America\u2019s resilient economy is masking a widening consumer divide.<\/p>\n

    John Lamparski&sol;Getty Images<\/p>\n<\/figcaption><\/figure>\n

    Why the Fed may have to make the pain worse\u00a0<\/strong><\/h2>\n

    Perhaps the most uncomfortable part of BofA\u2019s outlook is that the economy hasn\u2019t weakened enough to justify relief.<\/p>\n

    In fact, it looks strong enough to create a new rate problem.<\/p>\n

    BofA sees real GDP growing 2.3% in 2026<\/strong>, with the unemployment rate holding near 4.3%<\/strong>. The same forecast, though, has PCE inflation at 3.5%<\/strong> and core PCE at 3.3%<\/strong>, leaving inflation well above the Fed\u2019s target, even as growth keeps moving.<\/p>\n

    So the issue is that growth is far from cracking, while labor isn\u2019t breaking either, with sticky inflation still playing a big role.<\/p>\n

    Speaking of labor, compared with last May, the unemployment rate is flat, core PCE is up 70 basis points<\/strong>, and the policy rate is 75 basis points lower<\/strong>. Consequently, the bank expects 75 basis points <\/strong>of rate hikes this year, as I covered recently.\u00a0<\/p>\n

    On top of that, the inflation risk is even deeper than one hot print.\u00a0<\/p>\n

    BofA argues that inflation is still \u201cstuck above target,”<\/strong> with underlying measures also holding above 2%. Services demand is still propping up inflation, while tariffs have revived the relentless supply-driven pressure on goods.<\/p>\n

    The Fed might have to tighten because the parts of the economy that\u2019ve held up continue keeping inflation hot, even if the weak parts feel squeezed.<\/p>\n

    AI is holding up growth, but it brings its own shock\u00a0<\/strong><\/h2>\n

    Bank of America argues AI has become more than a simple tech-stock trade.\u00a0<\/p>\n

    In its midyear outlook, the bank argues that booming AI-related components have essentially become a demand shock<\/strong> for the broader economy.\u00a0<\/p>\n

    For perspective, AI spending is no longer just lifting the likes of Nvidia, cloud stocks, or the Magnificent 7. It is also helping to support U.S. growth.<\/p>\n

    To back that argument up with some data, Business Insider, citing Goldman Sachs, states the 2026 AI capex for the four could hit $725 billion, roughly double 2025\u2019s tally.<\/p>\n

    Moreover, the four major AI spenders lifted Q2 2026 capital spending by 74% year over year to $168 billion, showing the AI buildout is still moving at breakneck speed, even as investors question returns.\u00a0<\/p>\n

    BofA estimates AI investment will add 0.4 percentage point<\/strong> to GDP growth this year, while AI investment adjusted for imports rises to 0.7% of GDP<\/strong> in 2026.\u00a0<\/p>\n

    In a split economy, that is a massive cushion. Consumers continue to put in the work, but AI capex is also becoming a major engine of domestic demand.<\/p>\n

    However, AI\u2019s benefits aren\u2019t landing evenly.<\/p>\n

    BofA says the impact on jobs is already visible in white-collar services, while the productivity payoff remains an open question.\u00a0<\/p>\n

    Moreover, that scenario also ties back to stock market risk. If BofA is right on Fed hikes, rate-sensitive companies might feel a lot more pressure.\u00a0<\/p>\n

    In fact, the report says half of small-cap debt is short-term or floating rate, while a 75-basis-point hiking cycle could lift Russell 2000 ex-financials net interest expense by 13% <\/strong>of 2025 EBIT in 2027.<\/p>\n

    Related: Microsoft cuts thousands as Xbox faces rude awakening<\/strong><\/p>\n

    #Bank #America #warns #America #economies<\/p>\n","protected":false},"excerpt":{"rendered":"

    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… <\/p>\n","protected":false},"author":1,"featured_media":11048,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[246],"tags":[867,200,12068,583],"class_list":["post-11047","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-popular","tag-america","tag-bank","tag-economies","tag-warns"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/11047","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11047"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/11047\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/11048"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11047"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11047"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11047"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}