Economists from Bank of America indicate an increasing risk of stagflation in the US. They reference various “growth negative policies,” including deportations of undocumented workers, government job cuts, and threats of higher tariffs.
They point out that the modest and delayed fiscal stimulus is influenced by the narrow Republican majority in the House of Representatives. However, Bank of America anticipates that stagflation will be mild, with growth expected to remain in the low 2% range and inflation rising but staying below 3%.
The economists suggest that should growth decline further or inflation rise excessively, there may be a reversal in tariffs and immigration restrictions.
We see a clear warning from Bank of America’s economists about a growing risk of stagflation in the US, though they expect it to be relatively mild. They argue that current government policies—such as deporting undocumented workers, cutting public sector jobs, and discussing possible tariff hikes—could slow economic growth. These measures, according to them, weigh on the economy, making it harder for businesses to maintain costs and productivity.
At the same time, an underwhelming fiscal stimulus adds to the challenge. With Republicans holding only a slim majority in the House, any stimulus measures that do pass are likely to be modest and delayed. That means the economy doesn’t get much of an extra boost, making it harder to offset any slowdown from other policies. Despite that, the expectation is that growth will still hover around the low 2% range. Inflation, meanwhile, is expected to climb but not spiral out of control, staying under 3%.
The economists do leave room for adjustment. If growth falters more than expected or inflation climbs too fast, there’s a chance that policymakers will rethink some of these measures. Tariffs could be eased, and immigration restrictions might be softened, particularly if industries start struggling with labour shortages or higher supply chain costs. That possibility suggests a level of flexibility in economic policy, even if the current direction leans towards tightening.
For those of us watching market trends, these projections shape expectations for the coming weeks. Inflation rising—while still under control—suggests that we shouldn’t expect dramatic shifts in monetary policy just yet. The Federal Reserve is unlikely to take drastic action unless inflation accelerates beyond forecasted levels. Growth holding steady in the low 2% range also implies that the economy is slowing but not collapsing, which means markets will be keeping an eye on consumer spending and business investments.
One key factor to monitor is how these policies unfold in practice. Government actions sometimes take longer to filter through the economy than expected, and businesses tend to adjust more gradually. That means the direct effects of immigration limits or tariff changes may not be fully visible right away. However, if industries reliant on immigrant labour begin to struggle or manufacturing firms face higher costs due to trade pressures, we may start seeing clearer economic shifts.
Another point worth considering is how policymakers react to changing conditions. If inflation starts rising above expectations, we may see stronger pushback against further fiscal tightening. Likewise, if growth deteriorates beyond what Bank of America projects, discussions around trade and immigration could take a different turn.
In the meantime, the expectation of mild stagflation suggests a more cautious approach when evaluating economic momentum. While inflation remains a concern, it’s not yet at a level requiring aggressive intervention. At the same time, growth isn’t strong enough to offset concerns over policy decisions that could act as a drag on economic performance.
