The boss of one of the world’s biggest bank says the US can still handle two more rate cuts this year

The chief executive of one the world’s biggest banks says in an interview the US consumer is holding up.

Brian Moynihan the chief executive officer of Bank of America Corp is speaking to The Australian in Sydney. Picture: Bloomberg

There are few signs that inflation is re-emerging across the US economy, which means it can still absorb two more modest interest rate cuts this year, the Bank of America chairman and CEO Brian Moynihan has said.

In an interview with The Australian, Moynihan said: “I don’t think people fear inflation is coming back”.

“The rate structure in the United States is still very restricted. Inflation is 3 per cent, the Fed Funds rate is at 4.75 per cent. That is a big drag on the economy”.

He said the US is showing all the signs of a more normal pre-pandemic economy, with consumer spending recovering and jobs and wages growth steady. Although business borrowing remains subdued, he noted.

His comments come amid broader signs the US economy is starting to pick up momentum at a faster rate. A sell-off in bond markets this week has stoked concerns inflation could re-emerge if the US Fed cuts too quickly.

A Bank of America location in New York, US. Photographer: Angus Mordant/Bloomberg

Futures markets have fully priced in at least one more cut by the end of this year, possibly as early as November. Although just a few weeks ago, markets were more confident in tipping as many as two more rate cuts, following the Federal Reserve’s super-sized 50 basis point cut in September.

Moynihan is still tipping two more cuts this year from the US Fed, although he said the Federal Reserve will be “on guard” about inflation.

The BofA boss is visiting Australia as part of the bank’s 60th birthday celebration, he has also hosted a roundtable with a number of business leaders in Sydney, including Macquarie boss Shemara Wikramanayake.

BofA ranks as one of the biggest banks in the US and the world with a market value of $US325.2bn ($486.5bn), making it twice the size of Australia’s Commonwealth Bank.

It has among the biggest branch footprint across the US with nearly 70m consumer and business customers. It has more than US$3 trillion in assets, and employs more than 210,000 globally.

Moynihan told investors last week US consumer activity was “fine” despite concerns about the cost of living and high interest rates.

As the biggest main street bank in the US, Moynihan has the best line of sight in terms of activity through the economy, and broadly sees slowing growth and falling inflation. However, he has seen a pick-up in consumer spending in recent months with payments up 4 per cent to 5 per cent for the September quarter with the trend continuing into October.

“This activity is consistent with how customers are spending money in the 2016 to 1019 timeframe, when the economy was growing and inflation was under control”.

Business customers are a little more cautious around spending and investment, which is “consistent with a lower-growth economy,” Moynihan said.

BofA acquired then struggling Wall Street bank Merrill Lynch for $US50bn at the height of the global financial crisis.

Brian Moynihan the chief executive officer of Bank of America Corp is speaking to The Australian in Sydney. Picture: Bloomberg

This supercharged BofA’s growth across wealth management and delivered global investment banking to the conservative main street lender. Indeed, that deal created a banking major so vast it could provide branch banking in small town America to mergers and acquisition services on a global scale. Five years ago, it rebranded its retail wealth management business as “Merrill” and ran investment banking under a single BofA brand.

Moynihan, a one-time corporate lawyer, worked his way through BofA’s businesses, including consumer and small business banking. He was appointed to head up Merrill Lynch shortly after BofA took control, and was named group-wide CEO in 2010.

Although it controls one of Wall Street’s most-storied institutions, at its core the Charlotte, North Carolina-headquartered BofA remains a highly-conservative institution that leans into its southern heritage.

Through his tenure, Moynihan has talked up the need to drive organic growth by getting existing operations working more efficiently and putting the flurry of deal-making of his predecessors behind the bank. Today BofA is delivering smoother and predictable profits and in the past decade it has generated more than $US200bn in earnings.

His strategy built around “Responsible Growth” a phrase that has helped deliver a lower-risk BofA in the years following the GFC. The bank become one of the biggest beneficiaries during last year’s Silicon Valley Bank-led crisis, with tens of billions in deposits flowing to Moynihan’s bank.

Australia represents BofA’s fifth-biggest market outside the US with exposure of $US21bn in loans and commitments. This is just behind France at $US24bn and Canada at $US28bn.