Bloomberg Audio Studios, podcasts, radio news.
For our Bloomberg audiences worldwide. I'm David Weston. I'm delighted to be here with Brian moynan. He of course his chair and CEO of Bank of America. So Brian, thank you for having us here to your trading floor.
Happy holidays. First, David, thank you for coming.
And all these teammates have been there all day to waiting for you, so.
Waiting for something probably making money for you. So let's talk with the economy first. Overall, I think it's fair to say it's doing better than most people thought it would do. Is there any cause for concern it may be overheating, particularly as we see some new policies maybe coming our way.
So I think let's start on the first part of that question. If we were sitting here last year, our team, the research team, Kansas's team had a soft landing, no landing predicted, and a lot of people say, oh, that's very optimistic. And as matter of fact, we went from that would have been like a one percent GDP growth rate this quarter and we're going to have two and
a half or something like that. So we've moved up from abnormally from positive but low to now higher than trend, higher than average, And so that means the economy is not having a balance anything. It's just going on as normal growth trend, which is good news if you think about it becoming over heat. I think all the policies are yet to come in. There's enthusiasm or discussion, but everything's still out there until the policy get acted.
Our team, when they.
Look at taras say say, well, if tarasa are set by better regulation, they'll kind of even each other out. But even given their knowledge of the Trump present, like Trump's policies, they are still predicting next years of two and a half percent GDP growth. They predict a FED cuts rates a few times, but stays three seventy five to four, and the predicted it takes inflation all the way into twenty six to get down to the target.
If the inflation's moving down and we can grow this economy, that's actually not a bad place to be.
Honestly, does this economy need any physical stimulus at this point? And it looks right now like the so called Trump task cuts will get extended. And also Canada, Trump is talking about a lot more tax cuts and given the fact that we're above a trend on growth and we're to full employment, do we need any more stimulus.
I'm not sure you need more stimulus, just like we didn't need the stimulus probably in twenty one because the pandemic goes through the system. But the question is if you lower taxes and use it to reduce the debt. You know, there are questions how stimiative those activities are. And that's where the Terasury Secretary of appointee has got to figure it all out, because he's got to call the balls and strikes about how it all fits together, and that he's a market's orient person, he knows that
if it gets too far on line. We just ran for the last fiscal year in the United States and operating deficit of one point eight trillion, which is equally the entire.
GDP of the country of Australia.
So we got to realize that the impact we have if we don't get this debt back in line. So I think everything on one side has to be governed with whether they're do on the other side off set it whether it has that much effect. Right now, the economy is moving along, consumers are spending it's up for a two week period around the holiday Thanksgiving holiday. It's up five percent of it last year. That is good
and solid, that is not overheated at all. But that came off the lows a little bit the sum where I was a little nervous that they're going to let the consumer drift too far down. So between interest rates being cut a little bit between through his rats around the election, the market's being up. The consumers are spending more, and talents are going to spend more for the holidays, which is good for the general economy.
We've got to keep them in the game.
By not by overstimulating, by overdoing, by keeping the game just by getting a good core economy going with good deregulation activities, good tax policy, good immigration policy. These are hard things, but I think they're off working on it.
Let's stand the consumers here, because you know so much about the consumers here at back of America, giving your relationships. How is the consumer doing. I know they're spending, but I've seen numbers that suggest they're borrowing more, and in fact, Saint Luis FED has new numbers out from it as of October. The defaults are up as well, are you worried at all about the consumer.
So this is also this is go back to what you're thinking about, which is if you say the levels of consumer credit card debt are above whether we are.
In nineteen, it's almost it's five years later.
They should be above where they are in nineteen because economy is thirty percent bigger, So a lot is not numbers.
Forget to put them relative scale.
If you look at on a relative basis, it's still far below er it was nineteen.
And the credit was very good.
Then if you look at the defaults, they picked up and normalized the faults and delinquencies to where they were nineteen nineteen. Twenty nineteen was a fifty year low, and credit costs in our company fifty years we had to go back to find. So we got to be a little careful about what we're compared to. Everything's steady and fine now. Credit quality, consumers, the ability to borrow the household income they feel pinch them in the higher prices.
Part of that is real and part of that's just mental. You know, if the price of eggs doubled, it's hard to ever tell anybody it's okay because they have more wages they're just never going to agree with us, And that's the economist viel of an economy versus human beings view. But you know, all things, if they weren't, they wouldn't be spending money the way they are in a rational way.
At five percent year of the year, for the last couple of weeks, three and a half four percent for the month of November, and likewise it looks like that'll be December if they didn't feel confident.
And why is that? All comes back to one thing.
Four point one percent on the deployment rate, wage growth of three percent, that's the court.
Now, what could disrupt that a lot.
Of things, but that right now, that's the condition of American consumer. They have the ability to borrow, and they're borrowing rationally. They are employed, their wages are going up, they feel the pinch of inflation. They're trying to work that all through, and they're trying to have a decent, a good holiday season.
So we'll play that. What will hurt that worse is.
An unemployment moving up, and right now that's not predicted to happen at all.
Next year.
It's supposed to go. Our team has a four point three year end next year. You and I have been for most of our business careers. We'd been jumping over this the moon if we thought unemployment was four point three for the two or three years in a row or less.
Take all that economic data, put it all together, and tell me what the Fed should be doing. They're meeting today, we'll get a decision tomorrow. Twenty five basis points seems to be baked in as a cut, but should it be cutting further? Beyont the twenty five base points given the strength of the economy and all the things you just said.
If the economist view is you have to have a real rate structure across the curve of seventy five basis points one hundred basis points. If you're four seventy five four fifty now and the invition rates three point three, that's bigger.
So you've got to start to bring it in normalized.
We've got to get to, you know, positive soap and curve, a curve that has real rates across it. An inverted curve means something anticipatory is going.
To go the other way. All that's got to happen. So I think they need to bring it down a little bit.
They just have to be more careful because the economy is stronger than we thought three months ago, six months ago, but it still has potential weaknesses. You and I haven't even talked about what's going on outside the United States that can affect the United States. Not terrorists stuff, but wars. You know, what happened in the Middle East is the week. What happened in Korea, what happened, what's happened in Germany.
All these political changes could impact the United States ultimately because and reverberate with them, because we sell a lot of goods in the LED countries, and by the way, we buy a lot of stuff from these countries, and so you know, we're inextra could be linked with the outcomes of some of these things, and so we.
Have to be careful. But if you look at the USA out of cut.
Rates, bring them our view, our teams views that bring them down to three seventy five ish type of level three more cuts from where they are today, but they'll be higher in the current context.
But if you look back excluding two thousand.
And eight till now, three and a half percent, three percent FED funds rate is the norm, not the exception.
It's only been the exception in the last fifteen years.
But it is different from what we thought it was going to be. It's higher, I think the neutral rates higher than it was. How does that affect your business if at all?
Well, the question of everyone says to higher rates help high rates, the question is why they're there. If we had a normal rate curve from say three and a half percent on the front end of four and a half to percent of the ten year you know, and it was and the economy has growing two percent, that's a very.
Good place for banking.
The lincolns is to be low cost of credit and its availability is there. Your deposits are better suited at a higher nominal rate because when they go down, we have zero fours on a third to half of our deposits that just can't go any lower and zero unless we start charging people to give us their.
Money, which isn't going to happen.
So it's better force. But if the reason why they're hire is to choke off inflation, that can be not so good because that will probably lead to recession. And so the question what's the underline of and be doing less than the rate structure and the unline economy? Right now going two and a half with a three and a half to four percent fed funds rate in the four and a half percent tenure rate would be great for our industry.
And that's why I just keep growing every quarter.
We're thirteen nine, fourteen one, fourteen three, and you expect that growth to continue, and it's just walking up a ladder back to a level and you know, a peak.
We're like fourteen eight or fifteen.
So we have people out right now saying not four and a half, maybe five percent or even six percent of the tenure Do you put any credence in that.
Our team doesn't see that, you know, and I have to rely on the experts that spent you know, we wrote research paper with a five thousand year interest rate low in interest rates, and I said, how do you know that?
And they said, well, we went back and did research.
So we have Kansas's teams, a powerful team and the best in the business. So they think it's four and a half is just kind of what it is. And as the rate structure comes in, is there potential for that, Yeah, that's probably when something else is going on that is not good and therefore there'll be at faster adjustments which might bring it back.
In, but you know, you think about it. To go from a.
One one and a half percent ten yure to a four four and a half percent tenure, that's a lot of movement, and it's very restrictive on activity till the activity just out of that, and that's what we're seeing now.
You mentioned Donald Trump returning to the presidency next month. Now, how do you take the new account at Bank of America? I mean, what do you anticipate. We don't know exactly what will happen when it will happen, So how do you plan for that? What will it mean for Bank of America? Do you think?
Well?
So, I think one of the larger context is the oldest part of our company has been around for every presidential transition except for George Washington.
So we've been.
Through this before. We'll be through it to gain. But the real fact of the matter is if you think about what the policies are that he President elect Trunk got elected on. It's inflation and immigrations, but it's also about deregulation and our industry needs to have a sober
look at what the right regulation. Fifteen years ago, sixteen seventeen years ago after the financial crisis, we had to put new capital lu liquidity and restore the confidence in America Since ten twelve years ago, the people, government, the capitals about writing the industry.
Yet we kept ratching it up. So we ratchet up.
Capital, that draws down our ability to lend. It makes credit harder to get in, more expensive, and on a worldwide competitive basis, our capital rations are much higher.
And then the data is supervision.
So the idea of bringing that regulation back in the middle and then frankly for the good industry, getting is settled someplace so that we can build a model around it. What happens now is we do this and so we're hoping it brings it back to the middle. That's what our and by the way, that's what our customers like
about their industry. So whether it's the FDA FTC getting deals done, the enthusiasm, it's all about wait a second, now we can swing it back to the middle and go get stuff done and make the private sector, which is the reason why America is successful, lead as opposed to the governmental sector.
So when you hear about a pledge for deregulation is the main thing you hear with your Bank of America years on.
Is the reserve.
Requirements, capital, reserve liquidity, see Cartel.
There's a thousand different things.
What I really hear about deregulation is our clients also saying, you know, let's do deals, including our banking client. You know, we have our investment banking bank clients, and you've seen four or five deals past the day. The selling company in a transaction won't sell if there's a lot of uncertainty around it. No matter what the value is a matter. If I don't think it's going to get done, I don't sell. That's what was going on for the last few years. Any deal of size was going to get
hung up somehow unless it was so different. It was like a private equifirm buying a company had no other firm. And that's not good for letting these American companies get more successful and grow. It doesn't mean you're going to be into competitive, doesn't mean you're going to have that there's huge price, desire to market, there's great competition, all that stuff. What it means is our companies can grow and make the kind of strategic choices that happens in
the banking system. We can't do any acquisition that happens to our clients, it happens around us, that'll be good for us. But now, as it is about capital liquidity and day to day supervision, what.
Is the biggest change coming up for Bank of America because of this new administration?
Do you think, Well, I think it'll be the economic atmosphere of deregulation, how applies us specifically, how it applies more generally, and that will be good. Now, we got serious issues, as I said, around the outside world, serious issues or brought the right balance to get the debt back in line with our GDP and keep it there. But those issues are not new, but they have to dealt with because we've been in some ways not dealing with the debt issues or not dealing with immigration for
fifteen since I've been CEO. We've been talking about solutions here and we've got to now start to implement some of those to just bend the curve of debt growth, get more and more cash in, to cash out as more rational position, and then get the Hopefully, if you get the reguatory policies, you outgrow that. And that's basically
what our research team thinks. They've added a little bit to their growth since in saying that combination of policies some offset each other, some will add to it, but at the end of the day will be a little bit more growth orient We'll see what happens.
Brian, thank you so much for being on Bloomberg as Brian Moneyhand, He's chair and CEO of Bank of America.
Back to you,