Bank of America cautioned that recent U.S. policy changes could raise the risk of stagflation, even as global growth remains stable.
In a client note, BofA stated: “We remain constructive on US growth, but higher tariffs and immigration restrictions are a recipe for mild stagflation.”
The bank projects U.S. economic growth of 1.7% in 2025–26, with a rebound expected in the second half of this year.
However, it now anticipates that “core PCE inflation [will] peak at 3.3% this year and remain above 3% in 1H26.”
BofA also highlighted that “Powell’s dovish pivot at Jackson Hole has significantly increased risks to our Fed-on-hold call.” With the labor market slowing due to supply-side constraints, the bank warned that “rushing to cut rates could translate into a policy error.”
On the global front, BofA forecasts 3.1% growth in 2025, supported by pre-shipment of U.S.-bound exports ahead of tariff hikes. Growth is expected to moderate to 3% in 2026 before rising slightly to 3.2% in 2027.
Inflation, however, is likely to remain uneven, with BofA noting that “uncertainty is likely to remain elevated relative to normal times, with trade-related uncertainty giving way to other concerns including the Fed.”
In Europe, the bank expects the eurozone to barely grow this year, but hopes for acceleration next year thanks to improving external demand and the German fiscal stimulus. Still, BofA warned of a “persistent inflation undershoot,” projecting the European Central Bank to cut 50 basis points by March 2026.
Meanwhile, China’s economy expanded 5.3% in H1 2025, but BofA flagged “a persistent weakness in domestic demand in both investment and consumption,” with growth expected to slow to 4.1% by 2027.
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