The Fed “won” in its quest for a soft landing

Bank of America (BAC) CEO Brian Moynihan says the Fed has “won” against inflation, but pressures such as US consumer strength may keep interest rates high for longer.

Speaking at a luncheon hosted by the Economic Club of New York on Wednesday, Moynihan said the Fed needs to tame inflation by slowing the pace of US consumer spending — and according to the bank’s own data, that strategy is working.

“If you’re trying to engineer a soft landing…or something close to that, when you look at the current data, they’ve won,” Moynihan said of the Fed.

Bank of America stock was up 0.44% on Wednesday as of 3:00 PM ET. This year, the stock has lagged its peers, falling 17.5% since the beginning of January.

BOA’s checking account database of 68 million customers shows that U.S. consumers have “slowed down” and are currently on pace to spend at pre-pandemic rates “consistent with 2016, 2017 and 2018,” Moynihan said.

“They knew they came late. They caught up quickly. But now they have an equal and opposite problem. They have to be careful not to go too far,” he added.

Moynihan said Bank of America expects the Fed to raise interest rates “again” in November, followed by three rate cuts in 2024 and four in 2025. He added that the United States “will not have a recession,” but “a very slow one.” [GDP] Growth in the second and third quarters of next year. He said quarterly GDP would rise again to more than 1% by the end of next year.

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Bank of America Chairman and CEO Brian Moynihan speaks during “Mornings With Maria” at Fox Business Network studios on July 27, 2023, in New York City. (John Lambarski/Getty Images)

Meanwhile, Jamie Dimon, CEO of JPMorgan Chase, wasn’t quite as thrilled. Earlier this week in interview Dimon said in the India Times that he was cautious about the global economy. Given growing concerns about the Ukrainian war and food scarcity, geopolitical pressures could also push US interest rates to 7% – and he said he doesn’t think “the world is ready.”

When asked if he was as cautious as Dimon, Moynihan agreed that “there are geopolitical risks everywhere.” He added that one of the main issues of concern to the United States is “fighting inflation… and not being greatly affected by political outcomes.”

Like Dimon, Moynihan joined other executives in speaking out against new bank capital requirements proposed by regulators in July. The proposed rules require major banks to allocate an additional 16% capital to protect against potential future losses.

Moynihan framed the requirements as a matter of American economic competitiveness. If American banks were forced to hold more capital to lend to customers than their competitors in other countries, the American banking system would lose its edge.

“We’ll see that happen,” he said. “There’s a lot of work to be done, I think.”

David Hollerith is a senior reporter at Yahoo Finance covering banking.

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