Bank of America Reverses Recession Call, but Warns of ‘Very Negative’ Consumer Spending Risk

Bank of America CEO Brian Moynihan said that the financial giant no longer believes that the U.S. economy will fall into a recession, although he warned that the current slowdown in consumer spending could worsen, potentially pushing American shoppers into a “very negative” state that would be difficult to reverse.

Last year at about the same time, Bank of America was predicting that the U.S. economy would enter a recession—but the bank’s analysts have now reversed that call, Moynihan said.

“Basically they say we go to 2 percent growth, then one-and-a-half percent growth over the next six quarters and kind of bump along at that growth rate, plus or minus,” he said.

Part of what appears to be driving Moynihan’s cautious optimism is data coming from the bank’s consumer base of around 60 million consumers, which he said shows consumer spending grew by about 3 percent year over year in July and August of this year, roughly half the pace of growth in the comparable period last year.

“The consumer has slowed down,” he said. “They have money in their accounts, but they’re depleting a little bit. They’re employed, they’re earning money, but if you look at—they’ve really slowed down.”

Moynihan added that the bank’s spending data suggest consumers are increasingly bargain hunting, in another sign that the pace of spending by the American consumer may be faltering.

Unless it eases its high interest-rate policy “relatively soon,” the Federal Reserve risks denting consumer confidence significantly, Moynihan said.

“Once the American consumer really starts going very negative, then it’s hard to get them back,” he said.

Moynihan also revealed that Bank of America analysts expect the Fed to bring down rates at a slower pace than markets are currently pricing in, adding that he believes the era of near-zero interest rates is gone for good and that the central bank will eventually settle at 3.0–3.5 percent, which he called “back to normal.”

The Bank of America chief’s cautious optimism about a so-called “soft landing” contrasts with the outlook of JPMorgan Chase CEO Jamie Dimon, who remains less convinced that the U.S. economy will manage to avoid a recession.

Investors are now eyeing inflation data, which will take center stage this week with the release of the Producer Price Index (PPI) on Aug. 13 and the Consumer Price Index (CPI) a day after.

Investors are predicting that when the government releases its latest CPI data on Aug. 14, it will show that the annual inflation fell to 2.9 percent, breaking the psychological barrier of 3 percent, with the potential that upside or downside misses will be market-moving.