The head of America’s second-largest bank revealed what macroeconomic impacts United States consumers can expect in the midst of a busy week on Wall Street.
"[Businesses'] temperature, for lack of a better term, is mitigated by the worries about inflation, the worries about getting teammates to work for them, and also, frankly, the worries [of] the impact of higher rates," Bank of America Chairman and CEO Brian Moynihan said on "Mornings with Maria" Wednesday.
"When you go into larger companies, you've seen them not use our lines of credit. They've dropped line usage back down. That is an indicator [that] the cost of credit has gone up. So they're much more careful about how they use it," he continued. "Conditions of lending are tightening, and that's clearly happening, and again, it will lead to a slowdown in the economy."
Moynihan spoke on the varying ways rising interest rates have changed consumer and business decision-making as the Federal Reserve has lifted rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5%.
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Additionally, inflation pressure continues as The Labor Department reported last week that the consumer price index, a broad measure of the price for everyday goods including gasoline, groceries and rents, rose 0.4% in September from the previous month – a slight improvement from August, but still more than expected.
"The higher interest rates affect the most rate-sensitive of activities, so homes, and you saw mortgage applications were low today just because a higher interest rate makes everybody step back and adjust. Car purchases, same thing," Moynihan pointed out.
"People are forgetting on the commercial side, there's a huge impact of higher rates in terms of people's willingness to borrow," the chairman and CEO added. "And so lending conditions are tight, and that's what the Fed wanted to achieve."
Looking at the health of the U.S. consumer, Moynihan noted that, although spending has slowed modestly, it is still up 4% annually.
"The rate of spending across $4 trillion-plus that our consumers spend every year through their accounts, whether it's credit cards, whether it's cash, whether it's checks written, that $4 trillion is growing at 4% now. And if you look back and say, ‘What does that mean in historical context?’ That's more consistent with the low inflation, low growth economy," Moynihan said.
"So the point is that all the impacts of everything going on have led the consumer to slow down their activity. Whether it'll be bounced around in retail sales, this is across all the things they do with their money," he expanded.
After Federal Reserve Bank of Philadelphia President Patrick Harker indicated Monday that rates may stay where they are, Moynihan expressed economist predictions that an economic slowdown will hit mid-2024.
"The economy slows down in the middle of '24 to about a half-a-percent annualized growth for the second and third quarter, and then works its way back out. And the Fed will start cutting rates, they believe, in the middle of next year to the latter half of next year," he explained. "So that's the basic thing, what would be called a soft landing."
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Bank of America reported better-than-expected earnings growth for the third quarter, with net income rising 10% to $7.8 billion.
"We can see a path forward," Moynihan said. "We're now seeing net interest income, which is one of our major drivers of revenue, flatten out at a level and then going to grow from there based on what we see in the forward curve of interest rates. And so we feel good about it. It was good trading, it was good lending, good deposits, and everything continues to work $7.8 billion in net income."
FOX Business’ Megan Henney contributed to this report.
