BofA Warns Trump Policies Could Spark Economic Boom Over Stagflation

Bank of America has highlighted the prospect of a significant economic upturn under a potential second Trump administration as a pivotal “tail risk” that could redefine market expectations. In a recent analysis, BofA Research analysts argue that the U.S. economy may not merely experience a cyclical recovery but enter a full-fledged boom, driven by a confluence of political, fiscal, and structural factors. The bank’s warning underscores the shifting dynamics as the 2024 U.S. election approaches, with Trump’s economic agenda—centered on protectionism, tax cuts, and industrial reshoring—framing a scenario where growth accelerates unexpectedly. This contrasts with current market sentiment, where 70% of fund managers in June anticipated stagflation, while only 10% forecasted a robust growth and inflation environment [1].

The analysts identified five pillars supporting the boom scenario. First, political will is strong, with U.S. policymakers likely to prioritize pro-growth initiatives ahead of midterm elections. Second, the “One Big Beautiful Bill Act” (OBBBA), aimed at revitalizing domestic manufacturing, could catalyze significant capital inflows. Third, global reflationary forces are gaining momentum, with Germany recently implementing the EU’s largest stimulus package and other economies bolstering fiscal support. Fourth, corporate investment in U.S. infrastructure and technology is expanding, led by hyperscalers like Amazon and Microsoft, who plan nearly $700 billion in capital expenditures between 2025 and 2026. Finally, BofA’s proprietary “Regime Indicator,” which blends macroeconomic signals, is nearing a shift from a “Downturn” to a “Recovery” phase. Historically, such transitions have preceded value stock rallies, and a flip to “Recovery” in early August could trigger a rapid market rotation [1].

However, the feasibility of this boom hinges on several uncertainties. While major economies have pledged substantial stimulus—China’s 1.3 trillion yuan in special treasury bonds and the EU’s 806.9 billion euro NextGenerationEU package—many projects are phased over the next decade. For instance, OpenAI’s $500 billion Stargate project faces funding challenges, and U.S. manufacturing investments announced under Trump’s administration may take years to materialize. BofA acknowledges that these initiatives might not act quickly enough to fuel an immediate boom, though their long-term impact remains significant [1].

The potential boom carries mixed implications for markets. Industrial and energy sectors could benefit from protectionist policies, while technology and global trade-dependent industries might face headwinds due to tariffs. BofA also notes a potential August market rally as investors price in the risk of a Trump-driven surge, though this remains speculative. The bank’s analysis diverges from traditional tail-risk narratives, which often focus on economic downturns, by emphasizing that aggressive pro-growth policies could destabilize markets through inflationary pressures, currency fluctuations, or debt overleveraging. This perspective reflects broader debates about balancing fiscal stimulus with macroeconomic stability, particularly in a post-pandemic context where central banks remain cautious [1].

The political dimension of this risk is equally pronounced. Trump’s agenda, which includes deregulation and corporate tax reforms, contrasts sharply with recent bipartisan efforts to address climate change and labor market imbalances. Analysts remain divided on how these policies will interact with structural challenges like an aging population and rising public debt. While BofA does not quantify the probability of this scenario, labeling it a “key tail risk” signals its potential to disrupt consensus-driven market expectations. The bank’s revised stance—from forecasting stagflation to highlighting a boom—underscores the evolving nature of economic risk assessments in an era of heightened political uncertainty [1].

Sources:

[1] [“Not just a cyclical recovery, but a boom.” BofA says a “key tail risk” is that the Trump economy will actually start to take off](https://fortune.com/2025/07/28/trump-boom-tariffs-obbba-bank-of-america-stagflation/)

[2] [How a Viral Image Is Fueling the Fight over Reports of ...](https://eng.pressbee.net/show4098842.html?title=how-a-viral-image-is-fueling-the-fight-over-reports-of-starvation)