Must Read Research
Also featuring commentary from Global Economic Weekly
July 20, 2025
Candace Browning, Head of BofA Global Research
What happens when old systems meet new forces? This week, we highlight quantum computing, which could be humanity’s next “fire moment,” unpack the implications of the Reconciliation Bill for the healthcare sector and examine bubbles and the next Fed regime.
Quantum computing may be humanity’s next “fire moment,” says Haim Israel, Head of Global Thematic Research.
A quantum computer (QC) can perform in one second what would take a human ~50 quintillion years. Experts believe we could reach quantum advantage by 2030, when QCs can solve useful real-world problems faster than a classical computer. The combination of quantum and AI, encryption, and government-backed innovation could unlock up to $2 trillion in economic value by 2035. A QC with just 10 qubits can outperform classical computing systems 100-fold, and AI applications are a natural fit since quantum solves the memory and compute scaling bottlenecks slowing today’s largest generative models. QCs also consume far less power—the equivalent of a fridge vs. a small city for supercomputers. The biggest hurdle remains error rates—even record-low levels are still 150bn times higher than classical systems.
President Trump’s Reconciliation Bill spells trouble for the healthcare sector, particularly for hospitals and Medicaid/Exchange-focused managed care organizations (MCOs), according to Kevin Fischbeck, Health Care Facilities and Managed Care Analyst.
The bill could strip coverage from ~15 million people over the next five years, driving a 2% volume headwind and increasing bad debt as more patients are unable to pay for care. The sector is transitioning from Biden-era 2-3% tailwinds to structural headwinds and this is a shift the market may not fully appreciate.
Chief Investment Strategist Michael Hartnett believes that Wall Street is front running Fed capitulation and the potential for a nominal GDP (gross domestic product) boom.
The easiest way to pay for the One Big Beautiful Bill could be One Big Beautiful Bubble. Strength in semis, megacap tech and banks provide some evidence of bubble behavior but the biggest tell would be stocks ignoring a rise in inflation expectations and higher bond yields. The BofA Fund Managers Survey equity overweight is not yet worrisome and Michael points out that greed is always harder to reverse than fear.
Claudio Irigoyen, Head of Global Economics, BofA Global Research
Should I stay or should I go
Without entering into the legal intricacies of whether President Trump can remove Chairman Powell or not, there is a clear focus on the Fed and, from Trump's perspective, the need to cut interest rates to reduce the government's interest bill, which is running well above 3pp (percentage points) of GDP (Gross Domestic Product). But cutting rates to help finance the government deficit is we think probably one of the worst reasons to cut rates unless we are dealing with an extreme case of fiscal dominance and would show a clear deterioration in Fed independence.
One more reason not to cut
A natural corollary is that doing that might backfire and end up bear steepening the yield curve in a way that ends up increasing rather than decreasing the marginal cost of issuing government debt, while de-anchoring inflation expectations, weakening the dollar, and increasing credit risk. In this scenario, this unnecessary politically driven noise raises the bar for cuts, since now the Fed needs to have a very clear case for cutting rates without being perceived as capitulating to political interference.
Data review: rising goods inflation, resilient spending
The CPI (Consumer Price Index) data showed more evidence of tariff driven price hikes, but core CPI still came in below expectations at 0.2% month over month (m/m). PPI data was soft across the board, with both headline and core unchanged. Given the CPI and PPI (Producer Price Index) data for June, we are tracking a 0.3% m/m increase for core PCE (personal consumption expenditure) inflation. PCE inflation could hit 3.0% as soon as July. In turn, retail sales came in stronger than expected (but below our forecast) with the control group and ex-autos at 0.5% m/m. The control group was revised down but this was offset by upward revision to food services, which also grew by 0.6% in June.
