Bank of America’s Brian Moynihan warns against the ‘wealth effect’ that could feel like 2007-08

Bank of America’s Brian Moynihan warns against the ‘wealth effect’ that could feel like 2007-08

Discussing his perspective on the path of the Federal Reserve, America’s economic recovery and energy independence, Bank of America Chairman and CEO Brian Moynihan predicted a mild recession this year on “Mornings with Maria” Thursday. .

“Basically we have a mild recession forecast from the middle of this year through the 24th. We expect the Fed to raise rates more than 5% and keep them there for the whole of next year,” Moynihan told Davos host Maria Bartiromo. , Swiss. “Unemployment will go up a little bit, and that’s how they have to slow down the economy.”

Moynihan argued that “it will take a few years” for the Fed’s rate structure to “get back to normal,” thus rejecting any idea that it will cut rate hikes in 2023.

“Our spending and activity are more consistent with a slower growing economy and a more normal economy. Inflation is not over yet,” Moynihan said, “because the Fed raised rates so much to slow the economy down.”

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The Federal Open Market Committee that sets policy will meet from January 31 to February 3. 1. Markets widely expect the Fed to approve a 25 basis point rate hike that would lift the benchmark fed funds rate to a 4.5% to 4.75% range, deeper into tight territory.

Brian Moynihan at the World Economic Forum

Bank of America Chairman and CEO Brian Moynihan predicted a “mild recession” on “Mornings with Mary” Thursday from the World Economic Forum in Davos, Switzerland. (fake images)

Policymakers are in the midst of the most aggressive campaign since the 1980s to squash inflation, although there is preliminary evidence that Price pressures begin to ease.

The Bank of America president and CEO said his clients are “achieving multiples of revenue” compared to pre-pandemic levels as the stimulus is “still being spent.”

“That means the US consumer still has a lot of purchasing power,” Moynihan said. “Although the fight against inflation is that things get expensive, it hits them right in the pocket and then they start to change their behavior.”

The business leader also referred to the destruction of housing demand and what the recovery in the real estate sector looks like. Accepting that home prices have been hit earlier by the Fed’s rate hikes, Moynihan said mortgages will slowly start to return to a “long-term trend” near 3%.

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“The population in the US is pretty stable in terms of whether houses are needed in certain places. At the end of the day, there’s not that much aggregate demand and so rates slow it down,” the general manager said. “But that’s the intended result of the Fed’s rate change. If we didn’t slow down housing, people would have this wealth effect, it would probably feel more like 2007-08.”

With Goldman Sachs planning to lay off as many as 4,000 jobs this month, partly due to tightening monetary conditions, Moynihan said the job cuts will not reach Bank of America.

“We keep the critical staff, we keep the people we need and we really keep an eye on it. But look, we can handle that with a 10% turnover rate and 215,000 people,” Moynihan explained. “We have to hire 5,000 people to keep headcount stable. So what you do is you cut back on hiring and let headcount drift to where you want to be.”

The BofA president and CEO also called for a balanced energy policy, noting that the bank has $40 billion worth of loans to oil and gas companies and recently collaborated with Sen. Kevin Cramer, RN.D ., in a net zero commitment.

“We need to have both. We need a lot of oil and gas, energy security, and we need to start making the transition,” he said. “The key is to keep everything in balance.”

Moynihan also spoke out against the excessive bureaucracy involved in the energy industry, pointing to new European standards that will soon apply to American companies and their projects abroad.

“We have 200 companies that are already disclosed on them, but don’t take us in all these different directions, because then we can push the private markets,” Moynihan said. “Capitalism will solve these problems if you let it go. If you try to micromanage it, if you try to take it away, it’s done.”

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He further urged that the US has a “great opportunity” to capitalize on its liquefied natural gas supply and ensure we don’t make the “mistake” of relying on a singular energy source.

“About 18% of all clean energy in the United States works for us. It’s Texas, it’s Oklahoma, the wind, the solar, that’s where we do things. It’s a wonderful thing,” Moynihan said. “And with Kevin and others, I’ve asked him to speak to a group of CEOs about this, here’s a balanced view. We can push it forward. Even Senator [Joe] manchin [of West Virginia]I heard the clip there, we need oil and we need to get everyone there… We think the oil companies have to be at the table or else it won’t happen.”

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FOX Business’s Megan Henney contributed to this report.

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