Bank of America's Insightful Call on Inflation and the Economy

Bank of America, with its extensive network of 38.7 million checking accounts, provides a unique window into the spending habits of ordinary Americans on a weekly basis. This vast dataset allows the bank's leadership, including CEO Brian Moynihan, to gauge the health of the economy with accuracy. Moynihan's statements about the consumer are rooted in this data, which presents a multifaceted picture of the economy.

The second-quarter earnings report from Bank of America revealed a 27% increase in net income to $9.1 billion, accompanied by a 34% rise in earnings per share. This positive outcome was reflected in a 2% surge in BAC stock during morning trading. Notably, Moynihan emphasized that the U.S. economy has proved more resilient than expected, supported by a strong consumer, ongoing investments in artificial intelligence, and easing energy costs. However, he also acknowledged the lingering risks of inflation and tighter monetary policy.

Moynihan's assessment of the economy is particularly significant given the current market environment. Gas prices have been elevated due to the ongoing conflict in Iran, and investors are seeking clarity on whether consumer spending can sustain itself in the second half of the year. Ahead of the earnings call, Bank of America's research team raised its 2026 U.S. GDP growth forecast to 2.2%, projecting global growth of 3.2% this year, followed by 3.5% in 2027.

The tension between a resilient consumer and persistent inflation is a critical aspect of Bank of America's research. While a robust consumer is good news for growth, it also contributes to higher prices, which in turn leads to the Federal Reserve maintaining higher interest rates. This is evident in BofA's explicit connection between consumer spending and elevated energy costs, which has kept its Fed outlook hawkish.

The June Consumer Price Index (CPI) print was lower-than-expected, with core CPI remaining close to flat month over month. However, the BofA research team noted that this soft reading was primarily driven by a reversal of an increase in oil prices tied to the Iran conflict. On a trend basis, inflation has not shown meaningful movement.

The actual spending numbers have remained strong, with consumer spending growing around 5% year over year in the first half of 2026 and accelerating to 6% or more in Q2. Moynihan further stated that spending was even higher in June and July, extending the positive trend into the current quarter. The bank's consumer division yielded nearly $3.3 billion in second-quarter profit, with the 39 million checking accounts providing the bank with unique visibility into spending patterns across various income levels and geographies.

When Moynihan says the consumer is holding up, he is referring to transaction data, not sentiment. This distinction is crucial, as it highlights the importance of examining actual spending behaviors rather than relying on sentiment surveys. By doing so, Bank of America's research is able to capture a more comprehensive understanding of the economy.

JPMorgan has also recently commented on the economy and inflation outlook, while a separate report highlighted concerns from central bankers regarding AI funding. The same report also mentioned new trends emerging in the K-shaped economy, with Commercial lending showing signs of broader growth driven by business banking, commercial banking, and corporate banking alike. This widespread growth is a more solid indicator of economic resilience than concentrated capex spending in a few tech companies.

However, this very resilience makes it difficult for the Fed to justify cutting rates. Moynihan emphasized the current environment, stating, "It's a very good environment. Investors are invested." His statement reflects the challenging situation for the Fed, particularly given the prolonged impact of elevated energy costs on the economy.

Bank of America's Fed outlook is not encouraging for borrowers. The bank's economists are projecting 75 basis points of rate hikes over the next 12 months, nearly double what the market is currently pricing. This prediction is driven by the core Personal Consumption Expenditures (PCE) tracking at 3.3% year over year, close to the highest reading since 2023.

This trend indicates that yields are likely to remain elevated throughout the second half of 2026, primarily due to the Iran conflict. Higher oil prices continue to impact inflation data, despite fluctuations in monthly readings. Foreign investors have been absorbing some of this pressure, driven by demand for U.S. corporate bonds and Treasuries. Whether this demand will continue to hold as the rate path becomes clearer is an important question for the second half of the year.

This narrative was originally published by TheStreet on Jul 17, 2026, in the Economy section. Add TheStreet as a Preferred Source by clicking here.