Investing.com -- Bank of America analyst Aditya Bhave struck an optimistic tone on the U.S. economic outlook, arguing that 2026 could benefit from several meaningful supports even as the economy sits “at a crossroads.”
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Bhave said there is a “striking dichotomy between strong economic activity and soft labor data,” but its base case is that “consumer resilience will help stabilize the labor market.”
The bank expects “above-consensus growth of 2.4% in 2026 and 2.2% in 2027.”
BofA identified five key tailwinds for next year. First, the firm stated that it expects the OBBBA to add “0.3-0.4pp to GDP growth in FY26, via consumer and capex stimulus.”
Second, it argued that “the lagged effect of ongoing Fed cuts is likely to buoy activity in 2H26.”
Third, BofA wrote that “trade policy should turn more supportive for growth regardless of whether the IEEPA tariffs are overturned.”
Fourth, it forecasts that “AI-related investment will continue to support the economy next year.”
Lastly, the bank noted that “base effects from the shutdown should mechanically boost 2026 GDP growth.”
However, BofA warned that inflation is likely to remain above target. The bank said its upgraded growth outlook led it to raise its 2026 inflation forecasts, with headline and core PCE at “2.6% and 2.8%, respectively,” adding that tariffs should keep core PCE “above 3% through 3Q.”
On the labor front, BofA believes the market is “cooling, but not in the non-linear fashion that is characteristic of cyclical downturns.” It expects job growth to average 50,000 per month next year and unemployment to fall to 4.3% by late 2026.
Overall, BofA sees 2026 as “sunny side up,” supported by multiple growth drivers despite lingering risks.