Bof A sees three Fed rate hikes this year, inflation easing to mid-2% range by end-2027
Bank of America CEO Brian Moynihan discussed the U.S. economy, the Iran nuclear agreement and Federal Reserve monetary policy during a television appearance. Moynihan said the bank had just received complete July payment data, showing that overall spending by Bank of America customers rose 5% from a year earlier. Looking at June and July data, he said, the population can be divided into three groups—high-, middle- and low-income households—each representing one-third of the total. Wage growth among low-income households has been relatively faster, and their spending has also improved. Spending behavior across income groups is beginning to converge, which he called a very positive signal. Moynihan said he believes there is currently a purchasing-power crisis, largely because people perceive that they lack purchasing power. If prices do not return to a reasonable range, that perception will continue to change consumer spending behavior. The main pressure is concentrated in housing rents, which are still rising but at a slower pace. Insurance costs have gradually stabilized, while food and fuel prices remain additional concerns. If geopolitical negotiations make progress and oil prices decline, that would remove a major source of market anxiety. Overall, Moynihan said, pressure on purchasing power is a real problem. He said the related negotiations have been marked by repeated twists and turns, with oil prices fluctuating broadly from roughly $60-$70 to $100. Although that is a wide range, economies have historically been able to absorb oil-price shocks of that magnitude. The key issue is market expectations, Moynihan said. If people believe an increase in oil prices is temporary, they will anticipate a subsequent decline and adjust their spending and investment accordingly. Until the parties see a stable agreement implemented, uncertainty will continue to weigh on the market. Bank of America's research team expects inflation to fall to the mid-2% range by the end of 2027, gradually moving closer to the Federal Reserve's target. The team forecasts that the Federal Reserve will raise interest rates at its September, October and December policy meetings this year—a view that is above the current market consensus. Moynihan said the research team has the expertise to make that assessment. The core rationale is that the labor market remains broadly strong, requiring the Federal Reserve to continue managing inflation and ensure that it declines steadily.
Moynihan said the bank had just received complete July payment data, showing that overall spending by Bank of America customers rose 5% from a year earlier.
Looking at June and July data, he said, the population can be divided into three groups—high-, middle- and low-income households—each representing one-third of the total. Wage growth among low-income households has been relatively faster, and their spending has also improved. Spending behavior across income groups is beginning to converge, which he called a very positive signal.
Moynihan said he believes there is currently a purchasing-power crisis, largely because people perceive that they lack purchasing power. If prices do not return to a reasonable range, that perception will continue to change consumer spending behavior.
The main pressure is concentrated in housing rents, which are still rising but at a slower pace. Insurance costs have gradually stabilized, while food and fuel prices remain additional concerns. If geopolitical negotiations make progress and oil prices decline, that would remove a major source of market anxiety. Overall, Moynihan said, pressure on purchasing power is a real problem.
He said the related negotiations have been marked by repeated twists and turns, with oil prices fluctuating broadly from roughly $60-$70 to $100. Although that is a wide range, economies have historically been able to absorb oil-price shocks of that magnitude.
The key issue is market expectations, Moynihan said. If people believe an increase in oil prices is temporary, they will anticipate a subsequent decline and adjust their spending and investment accordingly. Until the parties see a stable agreement implemented, uncertainty will continue to weigh on the market.
Bank of America's research team expects inflation to fall to the mid-2% range by the end of 2027, gradually moving closer to the Federal Reserve's target.
The team forecasts that the Federal Reserve will raise interest rates at its September, October and December policy meetings this year—a view that is above the current market consensus. Moynihan said the research team has the expertise to make that assessment.
The core rationale is that the labor market remains broadly strong, requiring the Federal Reserve to continue managing inflation and ensure that it declines steadily.