After the release of the July employment report in the United States at the beginning of this month, the market has experienced significant volatility. Brian Moynihan, the CEO of Bank of America, stated that his bank’s research team no longer believes the US economy will go into a recession, suggesting that the US has achieved a “soft landing.”
Moynihan made these comments on Sunday, August 11, on CBS’s program “Face the Nation.” He mentioned that although the economy is slowing down, consumer spending is still consistent with the levels from 2017, 2018, and 2019 before the COVID pandemic.
The Bank of America research department, according to Moynihan, has a fantastic team that “no longer predicts any economic recessions.”
“Last year at this time, it was an economic recession. This year, what we’re talking about now is not an economic recession. Essentially, they (the research team) are saying we will have a growth of 2%,” he said.
In recent years, consumers have faced pressure from high interest rates, and the timing of the Federal Reserve’s interest rate cuts has been of great interest. Moynihan stated that his team expects the Federal Reserve to cut interest rates twice this year, once in September and once in December. There are forecasted to be four rate cuts next year.
He added that consumer spending rates in July and August are around 3%, about half of what it was in the same period last year. Consumers have slowed down their pace. Even though they have jobs and are earning money, they are indeed slowing down their consumption.
“So, we are returning to normal, and people need some time to adjust. Whether it’s in business and commerce or with consumers,” Moynihan commented on the interest rate cuts.
The report released by the US Department of Labor on August 2 showed that 114,000 nonfarm jobs were added in July, well below expectations and lower than the average increase over the previous 12 months (215,000). The unemployment rate rose to 4.3%, reaching its highest level in nearly three years.
The new data has raised concerns in the market about an economic recession as investors worry that these figures indicate a rapid softening of the economy. These worries led to a significant drop in the US stock market at one point.
Rick Rieder from investment management company BlackRock told Bloomberg that the Federal Reserve should have cut interest rates back in June. He believes that maintaining unchanged rates has come at a cost to the economy. However, the current economic conditions are still relatively strong.
In recent years, American households have faced various challenges, including soaring inflation rates, sharp rises in interest rates, and the impact of high oil prices. They are more inclined to purchase cheaper products. Despite these challenges, US consumer spending has remained robust. Consumer spending accounts for about 70% of the US Gross Domestic Product (GDP), which is an indicator of the overall economic scale.
According to The Washington Post, Mark Mahaney, a senior managing director at Evercore ISI, stated, “If I weigh all the data points, I would say I have more evidence to suggest that the economy is experiencing a soft landing.”