Bank of America warns the U.S. economy is splitting into two tracks, with higher-income households powering growth while lower-income families face stagflation-like conditions. In its mid-year outlook, the bank describes a K-shaped economy where spending by the top 1% of earners jumped 9.0% year over year in early June, compared with a 5.5% rise for lower-income households. The bank forecasts real GDP growth of 2.3% in 2026 and unemployment near 4.3%, but sees PCE inflation at 3.5% and core PCE at 3.3%, well above the Federal Reserve's target. Bank of America expects 75 basis points of rate hikes this year as inflation remains stuck, and notes that AI investment is adding 0.4 percentage point to GDP growth, though its benefits are unevenly distributed. The report also warns that half of small-cap debt is short-term or floating rate, and a 75-basis-point hiking cycle could lift Russell 2000 ex-financials net interest expense by 13% of 2025 EBIT in 2027.
Bank of America CorpBank of America's own mid-year outlook warns of persistent inflation and rate hikes, which could pressure its net interest income and loan demand.
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