Intriguing Call from BofA's Moynihan: Fed Should Exercise Caution in Rate Cuts

Bank of America CEO Brian Moynihan urged Federal Reserve policymakers to exercise caution regarding the extent of interest rate cuts. In an interview with Bloomberg TV, Moynihan commented that the Fed was "late to the game" in raising borrowing costs in 2022 and must now ensure they do not go too far with the reductions.

With an unemployment rate of 4% and a 5% wage increase, Moynihan expressed skepticism about convincing people that the economy is heading into a recession. He expects the Fed to implement a further 50 basis point cut before the year ends, followed by four more 25 basis point cuts evenly distributed throughout 2025, bringing the final rate to 3.25%.

Moynihan predicted that under such a scenario, inflation could decline to 2.3% in 2025 and 2026. He emphasized that the risk lies in the Fed moving either too quickly or too slowly, and this risk is currently higher than it was six months ago. He also noted that a terminal rate around 3% would represent a "completely different interest rate environment" in the US and other markets than what has been observed over the past 15 years. Moynihan stated that the bank's net interest margin could expand to as much as 2.3% in the long term, noting, "This is unusual. Most people are flat, and we are starting to grow."