US Economy Has 2 Economies: Reflation for High Income, Stagflation for Low Income

Bank of America warns that the US economy is running on two different tracks. While 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, lower-income households continue to absorb the harder side of the cycle, with sticky prices, higher borrowing costs, and renewed gas pressure. According to its mid-year outlook, 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 US economy might be strong in the places that matter for inflation but fragile in the places that matter most to households. This situation raises a harder question: What happens when the economy is too hot for relief, but too uneven to call healthy? 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.