Bank of America CEO Brian Moynihan said the U.S. economy is experiencing a “mitigation of growth” but not a slowdown.
Federal Reserve rate hikes are starting to be felt in House and the auto market, and renters will see their budgets squeezed as landlords move costs higher, he told CNBC’s “Squawk Box Europe.” But he stressed that consumer spending remains strong.
“If you raise the exchange rate and adjust the economy to fight inflation, the expectation is that you’re slowing consumer spending. That hasn’t happened yet. So it could happen,” Moynihan said. but it hasn’t happened yet,” Moynihan said.
“You’re seeing a slight slowdown in growth, not a slowdown. Not negative growth.”
Bank of America expects the Fed to raise rates by 75 basis points and 50 basis points at the remaining two meetings this year, followed by two 25 basis points hikes next year.
That would bring the deposit rate to about 5%, and the Fed could then “let it work,” Moynihan said.
The current rate of 3% -3.25% is the highest since the beginning of 2008 and is followed by triple increase of 75 basis points in an effort to combat inflation, running at 8.2% on an annual basis in September.
Economists, Politicians and business leaders distinctions about whether the US economy is headed for a recession or is already in a. US gross domestic product first developed this year in the third quarter, expanding at a higher-than-expected 2.6% annualized rate.
JP Morgan boss, Jamie Dimon told CNBC he expected a recession in six to nine months due to quantitative tightening and the unknown impact of Russia’s War in Ukraine.
But for now, consumers still have strong credit, low unemployment, strong wage growth, and corporations are doing well with strong underlying credit – even as growth and earnings are slowing. again, said Moynihan. However, he acknowledged there are risks from unforeseen events with “low probability and high impact”.
“You haven’t seen those risks manifest in changing the behavior of companies and consumers,” he said. “People don’t lay off large numbers of people, they don’t hire a lot.”
Asked if the corporate credit market was showing any warning signs, he said: “I wouldn’t confuse credit risk with valuation risk.”
“Growth and earnings may be slowing, again as the economy recovers very quickly and has strong growth but could slow down a bit. If you see negative GDP, of course corporate earnings. could slow down,” he added.
“But on the other hand, they’re still making money, the margins are still holding… the basic credit, the basic structure of the credit, the underlying credit quality is very strong.”
Energy export
Moynihan said Europe could see an early to mid-year recession before it “turns back to the other side”, with the war in Ukraine and the risk of an energy crisis looming.
“But right now you don’t see the conditions because jobs are strong, fundamentals are strong, the amount of stimulus put in is still in markets that people don’t see as a deep recession.”
He added: “The question of energy is much different from the US. The good news is that the US is a big economy, if we can get energy to Europe, for people to heat their homes and function. industry, that would be a good thing. And I know all the companies that are working on it, because I talk to them about it.”
