Bank of America Chairman and CEO Brian Thomas Moynihan speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee's oversight hearing on Wall Street Companies, on Capitol Hill in Washington, USA, December 6, 2023.
Evelyn Hockstein | Reuters
Both American consumers and businesses have become cautious about spending this year due to inflation and high interest rates, according to Bank of America Brian Moynihan, CEO.
Whether households or small and medium-sized businesses, Bank of America customers are slowing the pace of their purchases of everything from physical goods to software, Moynihan said Thursday at a financial conference in New York.
Consumer spending through card payments, checks and ATM withdrawals has grown about 3.5% this year to about $4 trillion, Moynihan said. This is a sharp slowdown from the nearly 10% growth rate seen in May 2023, he said.
“Both of our customer bases that have a lot to do with how the American economy works are saying, 'You know what? I'm being careful and slowing things down,'” Moynihan said, referring to consumers and businesses.
The slowdown began last summer and is consistent with the “very low growth” environment of the 2016 to 2018 period, he said.
Nearly a year after the Federal Reserve's last rate increase, consumers and businesses are struggling with inflation and borrowing costs that remain higher than they are accustomed to. The Federal Reserve began efforts to control inflation by raising its benchmark rate starting in March 2022, hoping it can slow the economy without tipping it into recession.
Many economists believe the Federal Reserve is on track to accomplish that feat, which has helped the stock market reach new highs this year. But consumers are still grappling with higher prices for goods and services, and that has impacted American businesses from McDonald's to discount retailers as Americans adjust their behavior.
Grocery shoppers are visiting more stores looking for deals, according to Moynihan. “They go to three grocery stores instead of two, is one of the statistics we see,” she said.
The now tepid growth in overall spending is being supported by travel and entertainment, while “other things have moderated except insurance payments,” Moynihan said. Growth in rental payments has slowed, he noted.
“We have to keep the consumer in the game in the American economy, because [they’re] “They have a big part of it,” Moynihan said. “They're getting a little bit dimmer, and that's because of everything going on around them.”
The same goes for small and medium-sized businesses, said the CEO of Bank of America. His company is the second largest US bank by assets, after JPMorgan Chase. Moynihan and other bank CEOs have a big-picture view of the economy, given their coast-to-coast coverage of households and businesses.
Business owners say, “'I still feel good about my business overall, but I'm not hiring as much. I'm not buying equipment as fast. I'm not buying software as fast,'” Moynihan said.
The bank's economists believe it will take until late next year for inflation to come under control and that the Federal Reserve will begin cutting interest rates later this year, Moynihan said. The US economy will likely grow at a level close to 2%, avoiding a recession, he added.
