Bank of America CEO Moynihan called on the Federal Reserve to be cautious when cutting interest rates to avoid excessive cuts. He pointed out that despite the strong economy, investors' expectations for rapid rate cuts have decreased. It is expected that the Federal Reserve will cut rates by 50 basis points before the end of the year and then cut rates four more times in 2025. He emphasized that the current economic situation makes the risks of rate cuts higher and believes that higher rates will be beneficial to borrowers
Brian Moynihan, Chairman and CEO of Bank of America, urged policymakers at the Federal Reserve to be cautious in the magnitude of interest rate cuts.
Moynihan said in an interview in Sydney on Wednesday that the Fed was "late to the party" in raising rates in 2022, and now they must ensure they do not cut rates too aggressively.
Investors have lowered their expectations for rapid rate cuts in the United States, and some Fed officials have indicated a preference for a slower pace of rate cuts after the first cut since 2020 last month. This is because there are signs that the U.S. economy remains strong.
At 65, Moynihan is one of the longest-serving CEOs among the top U.S. banks and has expressed his intention to continue in his role for many more years. In 2010, he was promoted to CEO of Bank of America when Wall Street was recovering from the subprime mortgage crisis, and he led the bank through the COVID-19 pandemic and the banking crisis that destroyed Credit Suisse and Silicon Valley Bank.
In the third-quarter earnings report last week, Moynihan stated that the company expects the U.S. economy to "soft-land," meaning strong economic growth will force central banks around the world to maintain a hawkish stance on inflation for a longer period.
He said on Wednesday, "With a 4% unemployment rate and 5% wage growth rate, economists find it hard to convince the world of an economic downturn."
He predicted that the Fed will cut rates by another 50 basis points by the end of this year, then average four more rate cuts during 2025, each by 25 basis points, to reach a final rate of 3.25%. He expects that in this scenario, the inflation rate will drop to 2.3% in 2025 and 2026.
He warned that the danger lies in "moving too fast or too slow, and the risk is higher now than six months ago."
The bank stated that despite signs of increased budget consciousness among some households, U.S. consumers are still using the savings they accumulated during the pandemic. Investors are closely monitoring consumer behavior to help predict the Fed's interest rate decisions.
It is certain that a "higher for longer" monetary policy will bring benefits. The central bank's policy rate has a significant impact on borrowers, who can typically price their loans at a larger spread in this environment.
He said that a terminal rate of around 3% would be "a completely different rate environment for the U.S. and other markets compared to the past 15 years. Frankly, this is a better position for us."
Moynihan said that the bank's net interest margin, an important indicator measuring the difference between loan rates and deposit rates, will expand to as high as 2.3% over an extended period. "This is very unusual," he said. "Most are flat or declining, and we are starting to grow."