Brian Moynihan, the CEO of BofA, said Wednesday that consumer spending remains strong, and that means the U.S. economy is in better shape than many believe.
Despite consumer confidence hitting a three-year low, BofA’s data shows people are still spending money, just in different ways. Instead of buying goods, they are shifting toward services.
“We’re in this classic moment … where the consumer is saying, ‘I’m getting more pessimistic,’ in some of the surveys and things like that,” Moynihan said during an interview with CNBC’s Squawk Box. “But if you actually look at what they’re doing day to day, they continue to spend, which means the economy ought to be holding up better than people think.”
GDP expected to slow, but growth remains solid
The U.S. economy is expected to grow at 2% in 2024, down from the 3% range seen recently, according to Moynihan. The slowdown is partly due to Donald Trump’s tariffs, which BofA estimates will cut 0.4 percentage points off GDP growth in the short term before the economy adjusts.
Moynihan said 2% GDP growth is what the country has been aiming for since the 2008 financial crisis, calling it “trend growth.” He said consumer spending is still strong enough to sustain the economy and that the biggest questions now are about how things will unfold in the coming months.
“We see the consumer continue to be solid, and that should bode well for the economy,” he said. “There’s a lot of questions out there, and I think that will sort through. But right now, we’re not talking about what could happen, we’re talking about what is happening. The consumer continues to spend pretty strongly for the first part of this year.”
Moynihan says the Fed should hold rates
Moynihan spoke just hours before the Federal Reserve’s latest interest rate decision, and he made it clear: the central bank should hold rates steady for now. Markets have already priced in zero chance of a rate cut, and BofA believes rates should remain unchanged through 2026.
“I would think the Fed would be a little cautious about cutting, not knowing what the impact of tariffs is going to be,” Moynihan said. “It would seem that maybe they’d want to hold on to the firepower that they’ve built up over the last year or so.”
He also said it would be better to maintain a “real interest rate” of 3% instead of going back to the near-zero levels seen after the financial crisis and during the COVID-19 pandemic.
Entablature carved with the words “Federal Reserve” above the ceremonial main entrance to the United States Federal Reserve Building (the Marriner S. Eccles Federal Reserve Board Building) in Washington, D.C., in the United States. The Neoclassical building was designed Paul Philippe Cret in 1935, and President Franklin D. Roosevelt dedicated the structure on October 20, 1937. Taken on September 13, 2012. Photo by: Tim Evanson.
Dan North, a senior economist at Allianz Trade North America, agreed. “There’s no chance of a cut Wednesday, so all the other stuff becomes more important,” he said. “They’re basically going to say, ‘You know what, we are in no hurry at all now.’”
That lines up with the Fed’s messaging. Chair Jerome Powell has repeatedly said there is “no need to be in a hurry” to cut rates. In a speech earlier this month, he told economists that the Fed wants “greater clarity” before making any moves.
Markets watch Fed projections, dot plot, and inflation expectations
Now, all attention turns to the Fed’s new quarterly projections, which include forecasts for GDP, inflation, unemployment, and interest rates. The last projections, released in December, showed inflation at 2.5% for both the core and headline numbers and GDP at 2.1% in 2025. That outlook could change.
With inflation staying higher than expected, some analysts think the Fed could raise its 2025 inflation forecast while lowering its GDP projection. Powell is expected to take questions in his usual post-meeting press conference.
One major focus will be the FOMC’s “dot plot”—a chart showing where Fed officials expect interest rates to go. The committee is split on what comes next.
Some members may stick with two rate cuts this year. Others might reduce that number to one or zero. A small number could even suggest adding another cut—though that would be highly unlikely given the Fed’s stance on inflation.
“I think it may be one or zero cuts this year, particularly if the tariffs stick,” North said. He added that if the Fed cuts rates too soon, it risks fueling inflation and having to reverse course later.
Trump’s tariffs could change the Fed’s timeline
Another key factor? Trump’s tariffs. The White House is expected to release a global review of tariffs on April 2, and if they increase, inflation could pick up again. That would give the Fed even more reason to delay rate cuts.
Some analysts think the Fed has already lost control of economic policy to the Trump administration. Thierry Wizman, a strategist at Macquarie, said the uncertainty surrounding the White House’s policies is making it hard for the Fed to commit to a clear rate path.
“The Fed may find it difficult to signal three more rate cuts, or even two more,” Wizman wrote. “It could push one rate cut into 2026, leaving only one cut in the median ‘dot’ for 2025.”
Markets still expect two or three rate cuts, but expectations are shifting
Despite the Fed’s hesitation, traders still believe two or three cuts will happen this year. Goldman Sachs economist David Mericle said the Fed might stick with two cuts just to avoid shocking the markets.
Right now, major stock indexes are hovering around correction territory, meaning they have dropped about 10% from recent highs.
In the past, the Fed has often stepped in to ease financial conditions when markets got rough. That’s known as the “Fed put”—the idea that the central bank will cut rates to support Wall Street.
But this time, the CME Group’s FedWatch tool shows traders aren’t expecting a rate cut until at least June. Even then, the market is split on whether the Fed will make one additional quarter-point cut or go for a third cut by the end of the year.
Beyond interest rates, the Fed is also dealing with its massive $6.4 trillion balance sheet, which includes Treasurys and mortgage-backed securities.
Right now, the Fed is letting a fixed amount of bonds roll off its balance sheet each month—a process known as quantitative tightening. Many expect the Fed to end this program later this year, but recent meetings have included discussions about how to handle the balance sheet long-term.
The FOMC could address this issue in its latest decision, but for now, markets are waiting to see whether the central bank will adjust its strategy or stick to the current plan.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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