Bank of America CEO: US consumer ‘in very good shape’, makes Fed’s job ‘tougher’
Bank of America CEO Brian Moynihan focused on the possibility of a recession and argued that the US consumer is “in very good shape,” making the Fed’s job “more difficult.”
Moynihan provided insight into “Morning with Maria” from the World Economic Forum in Davos, Switzerland, noting that his research team “stands by” their initial forecast for 2.5% growth this year and about 1.5% growth next year.
“And they don’t have any negative quarters,” he told hostess Maria Bartiromo, noting that the economy, however, is expected to slow.
Late last month, it was revealed that the US economy slowed significantly in the first three months of the year, as faltering supply chains, record inflation and labor shortages weighed on growth and slowed the pandemic recovery.
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In its first reading of the data, the Commerce Department said gross domestic product, the broadest measure of goods and services produced across the economy, contracted 1.4% year-on-year in the three-month period from January to March.
Moynihan provided insight ahead of the second estimate released by the Bureau of Economic Analysis on Thursday, which revealed that real GDP declined at a slightly higher annual rate of 1.5% in the first quarter of this year.
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A recession refers to the contraction of GDP activity for two consecutive quarters.
During the interview with Bartiromo that aired Thursday, Moynihan noted that his researchers raised the possibility of a recession and predicted that “there is a one in three chance.”
“But they really think it’s going to be a soft landing and not quite into a slump, even though it’s going to slow down,” he continued.
So far in May, Moynihan said, “spending is up in double digits from last May” and that “services spending is up significantly.”
“You see some retailers and you’ve seen some retailers see more easing where people can go out and travel so we think that’s a very good thing,” the CEO said.
It was revealed last week that Americans boosted their retail spending in April, a sign that consumers are still facing the inflationary storm even as prices continue to hover near a 40-year high.
The Commerce Department said last Tuesday that retail sales, a measure of how much consumers spend on a number of everyday goods, including cars, food and gasoline, rose 0.9% in April from the previous month. That was in line with economists’ expectations at Refinitiv, but marked a marked slowdown from upwardly-adjusted gains of 1.4% in March.
“Money in client accounts as of the end of April is up from March…especially in low-balance accounts,” Moynihan said, also noting that wages “are up 8% year over year, especially for average and lower incomes.” Based on direct deposit information.
He also noted that the consumer has “great borrowing power”.
“So American consumers are doing pretty well and frankly that’s good news for the Fed, but it also makes their job more difficult because if you think about wage growth and inflation and wages and labor market tightness, that’s still an illusion,” Moynihan said. It goes through the system here for the next four to six quarters.”
Markets have been volatile in recent weeks as concerns about a Fed rate hike and high inflation continue to rattle investors.
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The central bank faces the difficult task of lowering demand and prices without inadvertently dragging the economy into a recession.
Last week, Federal Reserve Chairman Jerome Powell reiterated his commitment to curbing the highest rate of inflation in decades, noting that the central bank would raise interest rates as high as necessary in order to tame consumer prices.
Fed policymakers raised the benchmark federal funds rate by half a point earlier this month, and Powell promised that two increases of the same size would be on the table at the upcoming meetings in June and July. That sentiment was echoed on Tuesday as the Federal Reserve races to catch up with runaway inflation and bring it back to its 2% target.
Moynihan also discussed raising wages amid a tight labor market during an extensive interview with Bartiromo.
Starting at the end of next month, Bank of America will raise the minimum hourly wage for American employees to $22.
The move, which brings the bank one step closer to meeting its pledge to pay $25 an hour by 2025, will increase the annual salary of Bank of America’s full-time employees to more than $45,000.
Bank of America raised the minimum hourly wage to $15 in 2017, $17 in 2019, $20 in 2020 and $21 in October 2021. By 2025, Bank of America’s minimum hourly wage will have It has increased by about $14 an hour — or more than 121% — since 2010.
Moynihan told Barthyromou that he had “accelerated” the commitment to pay workers higher wages this year “because of the market.”
He noted that last week Bank of America employees making less than $100,000 a year got a 3-7% raise depending on length of service at the company in an effort to reward longevity and “the professional mindset we want.”
He then said it “pays the shareholder” because Bank of America is able to keep expenses “relatively constant.”
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As of the end of March, there are 11.5 million jobs in the United States. 4.5 million Americans, or about 3% of the workforce, quit their jobs in March in search of better wages, working conditions and hours.
Bank of America’s latest wage increase comes as the Consumer Price Index, a broad measure of the prices of everyday goods including gasoline, groceries and rents, rose 8.3% in April from a year ago. On a monthly basis, average hourly earnings declined 0.1% in March, when accounting for rising inflation. On an annual basis, real earnings fell 2.6% in April.
Lucas Manfredi of FOX Business and Megan Heaney contributed to this report.