Inflation’s Persistent Grip: A Warning from Bank of America

The US economy has been grappling with persistent inflationary pressures, despite recent signs of improvement. Consumer spending remains resilient, and wage gains are still present, but the relief households expected hasn’t materialized yet. Corporate dealmaking shows fresh momentum, but this belies underlying concerns about the cost of goods coming through the pipeline.

Bank of America CEO Brian Moynihan has expressed concern that inflation might remain sticky enough to prevent the relief everyone is expecting. In an exclusive interview with CBS News’ “Face the Nation,” he pointed out that businesses are worried about the cost of essential items such as housing, food, fuel, and other necessities. This pressure will be exacerbated by higher energy costs feeding into plastics, materials, manufacturing, and transportation.

Moynihan’s concerns center around the continued strain on household budgets. He notes that wages have only recently coalesced together around 3% to 4%, while spending among the middle third and top third of households is growing more quickly than lower-income groups. This creates an uneven recovery where certain segments of society are benefiting disproportionately.

Bank of America’s economists forecast inflation staying higher all the way into 2027 and 2028, leading to a steep reversal in the bank’s interest-rate outlook. Moynihan indicated that six months ago, the team expected the Federal Reserve to cut rates. Now, they believe “our belief is we’ll raise rates” to contain consistent inflation.

The Uneven Recovery

Moynihan’s warning highlights the uneven recovery of the US economy. He points out that wage growth across income groups has been slow to materialize, with only recent gains in the 3% to 4% range. This creates a scenario where the game is indeed rigged for certain segments of society.

The recent investing trends underscore incredible frustration among younger retail investors who are willing to take on much more risk to achieve outsized gains. The crypto mania gave way to meme stocks during the pandemic, and prediction markets are the latest in this ongoing episode. Federal Reserve data shows that 49% of Americans under 30 lived with a parent in 2025, up from 43% in 2022 and 37% in 2019.

The Fed’s Dilemma

The implications of Moynihan’s warning become even more consequential once BofA’s forecast is converted into an actual policy rate. If the Fed raises rates to contain inflation, it will add pressure to already-strained household budgets. This is a delicate balance that the Federal Reserve must navigate carefully.

Three conventional quarter-point increases would lift the Fed’s target range from 3.5% to 4.25%, with a midpoint of 4%. Interestingly, this implied rate is roughly in line with some market expectations.

The Road Ahead

Moynihan’s warning is not just about inflation; it’s also about the future of the US economy. As he pointed out, “the game is rigged” for certain segments of society. This creates a scenario where the recovery is uneven and benefits only those at the top.

The question now is what this means for policymakers and households. Will they be able to contain inflation without straining household budgets? Or will they have to choose between growth and stability?

Moynihan’s warning has sounded a stark reminder that the economy is not out of the woods yet. Inflation may persist beyond the recovery period, and it’s up to policymakers to decide how to address this challenge. The future of the US economy hangs in the balance, and it’s time for policymakers to take action.