Stagflation or Reflation? US Economic Weekly

BofA examines whether the US economy is entering a stagflationary or reflatory phase amidst geopolitical and technological shocks. While resilient consumption and earnings favor reflation, high inflation and energy costs suggest stagflation risks, prompting the Fed to likely stay on hold until 2027.

Key Takeaways

• 1.The US economy is navigating a mix of supply shocks (Iran war, tariffs, immigration) and demand shocks (AI investment, fiscal stimulus), leading to high uncertainty.
• 2.Inflation is persistent, with core PCE estimated at 3.3% y/y for April, driven by shelter and services.
• 3.Resilient consumer spending and strong corporate earnings (1Q EPS at 26% y/y) support a 'reflation' narrative, delaying potential Fed rate cuts.

Table of Contents

• Stagflation or reflation?
• The week ahead: focus on the FOMC minutes
• Mintues preview: A hawkish message
• CPI review: an unseanonably hot April
• Retail sales review: A still-resilient consumer
• Crucible of confusion
• Inflation is inexcusable
• The case for reflation
• The case for stagflation
• Bottom line: the jury is still out
• US GDP tracking
• Data in the past week
• Data in the week ahead
• Federal Reserve Speakers
• Weekly spending update
• Core views
• Economic forecast summary
• Rates and dollar forecasts

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