BofA CEO: Consumers Could Sour Without Interest Rate Cuts

American consumers could become disheartened if the Federal Reserve doesn’t cut interest rates soon.

That’s according to Bank of America CEO Brian Moynihan, who made that prediction in an interview with CBS News Sunday (Aug. 11), after the Federal Reserve said it would keep its rate at a range of 5.25%-5.5%. However, the central bank has said a rate cut could come as soon as next month if inflation keeps cooling.

“They’ve told people rates probably aren’t going to go up, but if they don’t start taking them down relatively soon, you could dispirit the American consumer,” Moynihan said.

Earlier in the interview, he noted that consumers were already facing pressures, even as the bank’s data shows them spending on things like vacations and dining out.

“But if you look within it, they’re still going to restaurants and they’re taking travel, but on the other hand, they’re spending a little bit,” Moynihan told CBS. “They’re going to the food store the same number of times … spending a little bit less, which means they’re basically finding bargains and things like that.”

And if they’re not finding bargains, they’re “thinking twice before pulling the trigger to buy even everyday items,” PYMNTS wrote last week, “a hesitation to spend that’s evidencing itself in slowdowns and headwinds for all manner of firms across all avenues of commerce.

“There’s resilience, to be sure, but the resilience looks to be flagging, at least a bit, and depending on where you look,” that report added.

Meanwhile, Moynihan added that it’s not just consumers at risk, pointing out that the higher rate environment is hindering commercial progress, with corporations not tapping into lines of credit.

“Middle markets, small businesses, they’ve gone backwards in the use of lines of credit. So why don’t they use a line of credit?” the CEO said. “Either there is an opportunity or the cost is high, or both. And right now … they’re worried about the future.”

Research by PYMNTS Intelligence shows that under half of firms with up to $10 million in annual revenues had access to business or personal financing. Around a quarter of firms said they would look to increase their use of credit products this year, with more than half of them considering business credit cards. 

 

PYMNTS-MonitorEdge-May-2024