Chief executive officer of Bank of America Brian Moynihan said last Sunday, August 11, during a conversation with media representatives that in the United States, the lack of a decision by the Federal Reserve System to soften the concept of monetary policy, providing for cutting interest rates, in the short term may become a factor of negative impact on consumer sentiment, up to the formation of a kind of emotional tendency in the form of disheartened in the mentioned space.
The specified comment by the head of one of the largest US financial institutions was given after the country’s financial regulator announced that its rate would remain in the range of 5.25% to 5.5%. At the same time, the central bank of the United States announced that a decision could be made as early as September to ease the current monetary policy strategy. Fed officials clarified that the lowering of the cost of borrowing will become an objective fact of the US economic reality, provided that the inflationary process continues to be on a downward trajectory. The rise in the price of goods and services, which the central bank of the United States will perceive as excessive and beyond what can be called a moderate or uncritical increase in the indicator, is likely to become an obstacle to deciding on cutting interest rates.
Brian Moynihan, during a conversation with media representatives, noted that the Fed told the public that the cost of borrowing would probably not show growth, but the lack of monetary policy easing in the short term could disappoint US consumers. The CEO of Bank of America also said that the mentioned consumers are already facing pressure. At the same time, he separately drew attention to the fact that the data of the financial institution he heads indicate that people continue to spend in such areas of expenditure as vacations and dining out. However, Brian Moynihan underlined that spending volumes are not large.
It is worth noting that currently in the United States, consumers do not show a decrease in the number of visits to stores. At the same time, the volume of corresponding expenses decreased. As part of the nowadays purchasing practice in the US, there is a tendency of attention to special offers. In fact, in this case, it implies a massive interest in buying goods at discounts. If buyers do not find profitable offers, they begin to think very carefully about a potential purchase, and very often shoppers can refuse certain products if their buying is not related to meeting an urgent need.
In the United States, consumer activity, which is an important factor impacting the condition and prospects of the economic system, demonstrates sustainability, but confidence in its long-term continuation is not unambiguously optimistic. If the US financial regulator does not ease monetary policy, the mentioned activity will likely show a deterioration.
Brian Moynihan, while talking to media representatives, also drew attention to the fact that the absence of a decision on cutting interest rates by the central bank of the United States will have adverse consequences not only for the consumer activity space. In the context of the relevant thesis, he noted that the high cost of borrowing is an obstacle in terms of prospects for commercial progress because corporations do not tap into credit lines. Brian Moynihan underlined that medium-sized markets and small businesses have abandoned credit lines and are concerned about the likely scenarios of the future.
According to the results of industry research, it was found that currently in the United States, less than half of the companies whose annual revenue does not exceed the $10 million mark have access to financing for business or personal needs. Also, about 25% of US firms intend to expand the use of credit products by the end of 2024. More than half of these companies are considering using credit cards for business.
During a conversation with media representatives, Brian Moynihan also stated that currently the consumer base with which the financial institution he heads interacts consists of 60 million people. According to him, the expenses of the bank’s customers in weekly terms as of July-early August 2024 increased by about 3% compared to the figure recorded for the same period last year. At the same time, he noted that in 2023, the increase in the mentioned indicator was more intense. According to him, in the context of the annual comparison, a slowdown in consumer demand is recorded. He also underlined that there is money in the client’s accounts, but the corresponding amounts are decreasing.
Brian Moynihan says that the Fed should act very carefully in the context of making changes to the concept of monetary policy. According to him, currently, in the United States, there is a level of spending that corresponds to the dynamic in the period from 2017 to 2019, when there was lower inflation and more normal economic growth.
Brian Moynihan also said that many clients of the financial institution he heads have moved money to instruments that pay higher interest rates out of the checking accounts.
According to the Bank of America CEO, the United States has already won in countering inflation. At the same time, he noted that the state of affairs in the space of the US economic system does not yet correspond to the configuration that society identifies as the most favorable. Also, according to him, the Fed should currently take measures and moves that will not provoke the implementation of a recession scenario. However, he stated that the team at Bank of America Research no longer predicts the materialization of the mentioned scenario in the United States. Brian Moynihan expects the US economy to show growth rates ranging from 1.5% to 2% over the next six quarters.
According to the Bank of America CEO, this year the Fed will make two decisions on cutting interest rates. He assumes that the central bank of the United States will take appropriate action in September and December. Brian Moynihan also predicts that next year the US financial regulator will make four consecutive decisions on lowering the cost of borrowing.
When asked about the interpretation of Fed chairman Jerome Powell’s words that political leaders influence or prevail over economists, Mr. Moynihan said Fed central banks are independent and operate freely.
Separately, Brian Moynihan said that as interest rates go up, the US debt carry cost goes up for the federal government, just like it goes up for the consumer companies. According to him, in this case, the economic system of the United States is being damaged, since the money could be spent on something other than debt.
Brian Moynihan also agrees with many experts and analysts who are convinced that the measures taken by Washington to counter the challenges posed by the coronavirus pandemic contributed to the current inflation. Commenting on the possibility of solving the problem of US debt, he mentioned that about 15 years ago the Bowles-Simpson Commission proposed tax increases as a tool to achieve the goal in the context of the corresponding issue. At the same time, Brian Moynihan says that tax raising as a kind of stand-alone solution does not improve labor productivity or the growing quality of debt management. In this case, it is implied that specific actions with clearly defined reference points should be performed concerning debt, and not a kind of large-scale policy with abstract guidelines or ambiguous goal-setting in terms of concreteness.
As we have reported earlier, Bank of America Adds Transaction Search Engine to CashPro Platform.
