For much of the past year, investors have operated under a simple assumption. Inflation is gradually cooling, the Federal Reserve will eventually pivot to rate cuts, and the economy will settle back into a familiar low-interest-rate environment.
Increasingly, the data is pointing in the opposite direction. A growing body of evidence suggests the U.S. is not dealing with a temporary inflation spike, but rather entering a reflationary mini-cycle.
In a Tuesday note, Bank of America (BofA) significantly raised its probability of such a scenario, arguing that the cycle could persist through 2027 and potentially into 2028. The bank sees the middle stages of a multi-year expansionary cycle fueled by tariffs, manufacturing price pressures, and resilient domestic demand.
If that view proves correct, investors may need to rethink both their macro outlook and sector positioning.
The Death Of The Disinflation Narrative
