Bank of America CEO on the consumer: Starting to see more convergence in spending patterns

[00:00:00] Speaker 1: We are live this morning at the Aspen Economic Group Strategy Group meeting in Aspen, Colorado. Joining us right now is Bank of America CEO Brian Moynihan. We've been talking for the past day here with so many different leaders about what's happening in the economy. I mentioned earlier to Derek Khosrowshahi that Scott Besson was on our broadcast, has been talking about the economy no longer as a K-shaped economy, but a C-shaped economy. You actually have the data. He has some data, too, but I'm curious what your data is showing. [00:00:30] Speaker 2: Well, in the month of July, we just got the final sort of payments report. Consumers at Bank of America put 5% more in the economy. And what you've been seeing in June and July is that if you do a third of third-third high-income, medium-income, low-income, the lower-income people's wages are growing a little faster. So that's great. And they're spending a little bit more. And so you're starting to see more convergence in the spending patterns. That's very good. If you look at what they're spending on, it's interesting. Cruises are up strong. Travel, instant numbers of travels is flat. The cost is up a little bit. Gas is up. Food's down a little bit. So if you look around, they just move money around. They're pretty resilient. But 5% is consistent with a 2.5% growing economy. That's a good news because if the consumer stays in the game, the U.S. economy kind of rolls along. They have great debt capacity. They're not as borrowed up as people think because they see, like, credit cards pass where they were in 19. But it's been six years now, seven years. [00:01:25] Speaker 1: Does that change your view of the, you know, you look at a lot of polls. People talk about affordability and an affordability crisis. Do you think we have an affordability crisis based on these numbers? [00:01:34] Speaker 2: I think we have an affordability crisis because people believe there's an affordability crisis, which will shape their behavior if it doesn't come in the line. That's largely around housing and rent costs, which are still rising, but rising at a less fast rate. It's around insurance costs, which actually came back in line. It's around food costs and gas costs. And so if a deal gets worked out and gas prices come back down, that takes away one of the concerns. But it's a real issue. It's just the say-do paradox is about as high as I've ever seen it. So that's what the polls say, and it's how people feel. What you watch them do is different because they're spending on, they're spending absolutely consistent what they spend on past and probably a little bit more on entertainment, a little bit more on travel than they did last year this time. Not, you know, other parts of the year, but the last year. [00:02:18] Speaker 1: By the way, you talked about oil and the straight. When corporate leaders call you for advice, we have maybe a deal in the next day. The markets think there's a deal. Do you say to them, we think there's a deal too? We think we should be skeptical? What's the right reaction? [00:02:36] Speaker 2: Well, I think there's been ups and downs on this. And you see a range of oil prices probably from 60, 70 to 100. And while that seems like a huge range, the actual impact of that has been felt by the economy before. The question is if people believe it's temporary, they change their behavior, think it's going to come back down. So that uncertainty is still in people's minds until they see a deal get struck and hold. And look, this is hard diplomatic work that's going on. I think we all think, well, you can just sit there and work it out. It's been going on a while. But I think, believe me, the small business community, the medium-sized business community, the large business community would be very happy if this got cleaned up [00:03:14] Speaker 1: and they knew that oil prices were more predictable in the long-term future. One of the big debates here, of course, given we have so many members of the FOMC here, sometimes they call this the pre-show for Jackson Hole, is whether interest rates need to, you know, whether they need to be hiked, right? Like that's the big question. We're going to have Neil Kashkari on in just a little bit. You're calling for three hikes, I think, by the end of this year, which is not, I think, where everybody else is. It's a little bit, it's higher than the market, but you've got to back up on why. [00:03:46] Speaker 2: So if you look at the issues of inflation continuing to roll through the economy, it was mitigating that pop back up because of the impact on prices from terrorists, impact on prices from the war. And that's coming back down. Our team thinks inflation reaches the mid-twos by the end of next year, 27, and then gets into the target range that you've heard them talk about. They think the federal raise rates three times in September, October, December meeting this year. That's a little bit more than the thing. And they're a smart research team. They think this through. But they really are saying that the labor market's in very good condition. And so you have to work on the inflation side and make sure that it keeps going down. If it goes down better than, like last month, it went down a little better than people thought, I'm sure that they would change that. But right now they think that that three gets the Fed in a place that they can have the inflation get tamed. What's important, though, is the travel across the last 12 months of the view of the second half of this year. So Liberation Day, last year's second quarter, instantaneously people took 100 basis points out. As you move through, they raised it back by more than 100 basis points. Then it came back down. And now they're sitting at 2.4 for the year and 2.5 for the second half. So they're accelerating and they're accelerating. And so raising rates and accelerating economy to help the inflation is actually a rational economic strategy because the economy can grow through the higher rate structure. Becky's got a question for you back in New York. [00:05:07] Speaker 1: Becky? [00:05:08] Speaker 3: Thanks, Andrew. Brian, it's good to see you. If that's the case, if we actually do raise rates three times to try and get inflation back down, like you suspect, by the middle part of next year, what impact do you think that will have on lending, particularly for I'm thinking of the AI data space? There's a lot of money that's needed for that. There's a lot of financing that's going through. So if you see rates up 75 basis points, do you think that has an impact and slows any of that down or not? [00:05:38] Speaker 2: Well, I think the impacts to that financing you've already seen. You've seen the spreads move out on the bonds. There's generally term facilities. Yes, they do some short-term construction financing. But the long-term impact of that financing on that build-out is going to be in the term bond structure. You've seen those move out. And my guess is short-term rate moves won't have a big move in that area of the curve. So it should continue because, frankly, what we're hearing here and what you hear from your colleagues that you bring on the show all the time is the returns on building a data center are so high that it'll be fine. When you get further down the build-out, this may be a more interesting gate than you have not. But I think right now they're building through it because the economics still support it. Their usage is going up dramatically, and they've got to get these things built.