Bank of America CEO Brian Moynihan has revealed that both consumers and businesses in the US are becoming more cautious with their spending due to elevated inflation and interest rates. This caution is evident in the slower rate of purchases being made across various sectors, ranging from hard goods to software. In fact, consumer spending through card payments, checks, and ATM withdrawals has only grown by about 3.5% this year, a significant slowdown from the nearly 10% growth rate seen in May 2023.
This slowdown in spending can be attributed to the low-growth environment that has persisted since 2016. The cautious approach adopted by consumers and businesses is a response to inflation and borrowing costs that remain higher than what they are accustomed to. The Federal Reserve’s efforts to control inflation through rate hikes have impacted the behavior of Americans, leading to higher prices for goods and services.
To cope with rising prices, consumers are resorting to visiting more grocery stores in search of deals. According to Moynihan, they are now going to three stores instead of two. However, not all sectors are experiencing a decline in spending. The travel and entertainment industry continues to see growth, while other areas, such as rent payments, have slowed down.
Moynihan emphasizes the importance of keeping consumers engaged in the economy, as they play a significant role in its functioning. However, their tenuous position due to external factors is a cause for concern. Similarly, small- and medium-sized businesses are also expressing caution, resulting in reduced hiring and slower equipment and software purchases.
Bank of America’s economists predict that it could take until the end of next year for inflation to be brought under control. They also believe that the Federal Reserve will start cutting interest rates later this year. Despite these challenges, Moynihan expects the US economy to grow at around a 2% level and avoid a recession.
In conclusion, the cautious approach adopted by consumers and businesses in the US is a direct response to elevated inflation and interest rates. This has led to a slowdown in overall spending, except for the travel and entertainment sector. While the Federal Reserve’s efforts to control inflation have had an impact, it may take some time for the situation to stabilize. However, Bank of America remains optimistic about the economy’s growth and believes that the Federal Reserve will take necessary steps, such as cutting interest rates, to support it.
