While analysts may be hankering after hints from Fed Chairman Jerome Powell on his next move, Bank of America CEO Brian Moynihan is looking elsewhere to gauge the economic temperature.
Wall Street has been waiting for months with bated breath to see when—or even if—Powell and his colleagues decide to cut the base rate, currently at a two-decade high.
Earlier this year, experts who were fairly confident the Fed would make a number of cuts down from the 5.25% to 5.5% bracket are now beginning to question whether a reduction will happen at all this year.
But Moynihan—who leads a team that handled $25 billion in flows of assets under management in Q1 2024—isn’t waiting for a cue from Powell to make decisions.
He says he’s looking at the data to decide how well the economy’s doing, which doesn’t fall under the Fed’s influence.
Speaking to CNBC’s Closing Bell on Tuesday, Moynihan said he believes analysts are “Fed watching way too much right now.”
He explained the Fed had put a “huge constraint” on economic growth since the fiscal stimulus rolled out to push the economy through the pandemic, but that a slowdown in activity had taken longer than Fed experts had predicted.
A Bank of America research note released Monday expects the Fed to start cutting rates from December with inflation staying “stubborn” in the near term.
“There is high uncertainty regarding what the Fed can do,” wrote Carlos Capistran, David Hauner, and Claudio Irigoyen.
“Two, one, or zero cuts are on the table for this year, and even a hike does not have zero probability although it is unlikely, in our view. It all depends on how economic activity, the labor market, and inflation behave in the following months.”
Such experts, Moynihan added, believe it will take up to four years to “wind out of inflation”—so while the Fed may have levers at its disposal to wrangle down inflation, it cannot control every aspect.
“While the Fed has omnipotent power to make the decision, they don’t have the power to decide what the facts are,” Moynihan added.
Like his counterpart at JPMorgan Chase, Jamie Dimon, Moynihan said his company will “operate well in any environment”—regardless of the Fed’s decisions.
That being said, BofA expects “everything to align for the Fed to start a gradual cutting cycle in December,” followed by cuts every quarter of 2024 of 25 basis points.
Bank of America’s consumers defying expert predictions
Moynihan also pointed out that consensus views since the pandemic have been repeatedly negative when compared with reality.
Bank of America’s 60 million consumers are continuing to bear up well under a concoction of inflationary pressures and fiscal tightening, but Moynihan said: “If we were sitting here last year, or a year and a half ago, we were talking about consumer spending being very strong. And a lot of people were saying, ‘Well, the consumer is going to run out of money.’”
Experts across the spectrum have been convinced over the past year that consumers would eventually run out of cash to splash.
Wharton professor Jeremy Siegel, for example, believed in July of last year that “YOLO [you only live once] consumers” were spending the last of their funds on a blowout summer, signaling “the last good stretches for the economy before the summer ends and credit card bills come due.”
At Citi, CEO Jane Fraser said in October that “cracks” were beginning to appear at the lower income end of the consumer scale.
Growth has begun to “come off,” she explained to CNBC, adding: “September, in terms of the softening of the growth in demand, is … evident.”
And even Moynihan himself warned a matter of weeks later that consumers were beginning to act in a manner consistent with a “low growth, low inflation economy,” which the U.S. Saw from 2016 to 2019.
“Consumers’ activity has slowed down … It’s slowed by half, and that means the consumer is being slowed down by the interest rate environment and all the stuff going on,” he told CNBC’s Squawk on the Street at the time.
But come 2024, Moynihan has been convinced that consumers haven’t yet run out of steam.
“[Experts thought] the consumer was going to over-leverage. Did not happen. The consumer wage growth is not going to keep up [with] inflation. It didn’t happen back then,” he added.
Moynihan reiterated that consumer spending has slowed, but explained: “You’re seeing the consumer hang in there and continue to spend, but spend at a level that’s more consistent with a more trend type of economy, and we will see all that play out over the … next quarter.”