U.S. consumer spending is experiencing a “mitigation of growth” however not a slowdown, Bank of America CEO Brian Moynihan mentioned Friday.
Rate of interest hikes by the Federal Reserve are beginning to be felt in the housing and auto markets, and renters will see their budgets squeezed as landlords cross on increased prices, he advised CNBC’s “Squawk Box Europe.” However he pressured that consumer spending stays sturdy.
“If you raise rates and slow down the economy to fight inflation, the expectation is you have a slowdown in consumer spending. It hasn’t happened yet. So it could happen, but it hasn’t happened yet,” Moynihan mentioned.
“You’re seeing a mitigation of the rate of growth, not a slowdown. Not negative growth.”
Bank of America expects the Fed to hike charges by 75 foundation factors and 50 foundation factors at its two remaining conferences this yr, adopted by two 25 foundation level will increase subsequent yr. One foundation level equals 0.01%.
That may take the funds fee to round 5% and the Fed can then “let it work,” Moynihan mentioned.
The present fee of 3%-3.25% is the very best it has been since early 2008 and follows three 75 foundation level rises in a bid to fight inflation, which was working at 8.2% on an annual foundation in September.
Economists, politicians and enterprise leaders are cut up on whether or not the U.S. economic system is heading for a recession or is already in one. U.S. gross home product grew for the primary time this yr in the third quarter, increasing at a higher-than-expected 2.6% yearly.
JPMorgan boss Jamie Dimon advised CNBC he expects a recession in six to 9 months given quantitative tightening and the unknown affect of Russia’s battle in Ukraine.
However for now, customers nonetheless have sturdy credit score, unemployment is low, wage growth is powerful and companies are in good condition with sturdy underlying credit score — even when growth and earnings are slowing, Moynihan mentioned. Nonetheless he did concede there have been dangers from unexpected occasions with “low probability and high impact.”
“You don’t see those risks evidencing in behavior change of companies and consumers yet. People aren’t laying off massive amounts of people, they’re not hiring as many,” he mentioned.
Requested whether or not the company credit score market was flashing any warning indicators, Moynihan mentioned, “I would not confuse credit risk with pricing risk.”
“Growth and earnings may be slowing down, again because the economy recovered very fast and had major growth that flattens out a little bit. If you see negative GDP prints, of course corporate earnings might slow down,” he added.
“But on the other hand they’re still making money, the margins are still holding … the underlying credit, the underlying structure of the credit, the underlying credit quality is very strong.”
Vitality exports
Moynihan mentioned Europe may see a recession early to mid subsequent yr earlier than “coming back out the other side,” with the battle in Ukraine and vitality disaster dangers on the horizon.
“But right now you don’t see the conditions because the employment’s strong, the underlying activity’s strong, the amount of stimulus that was put in is still in the markets that people don’t see it as a deep recession.”
He added: “The energy question is much different than the U.S. The good news is the U.S. is a big economy, if we can get the energy to Europe, for the people to heat their homes and industry to run, that would be a good thing. And I know all the companies are working on it, because I talk to them about it.”
Correction: This text has been up to date to make clear that Brian Moynihan was discussing growth in U.S. consumer spending.
