The Fed has to start cutting rates to avoid tipping the economy over, and 8 cuts are coming in the next 2 years, Bank of America, $BAC, chief Brian Moynihan has said per BI.
Bank of America CEO Brian Moynihan has suggested that the Federal Reserve might reduce interest rates by eight times over the next two years to support the US economy. According to Bank of America's forecast, four rate cuts are anticipated in both 2024 and 2025. Moynihan shared this perspective during an interview with Bloomberg at the World Economic Forum. This projection implies a total of 200 basis points in rate cuts, bringing the Fed's benchmark rate down to the range of 3.25% to 3.5%.
Moynihan argued that these rate cuts are deemed necessary to boost the US economy, which has experienced a slowdown by various measures since the Federal Reserve increased borrowing costs in 2022 and 2023.
While the prospect of eight rate cuts may appear aggressive, Moynihan emphasized that such a pace of monetary easing would still maintain higher-for-longer rates to manage inflation. He highlighted that rates were just above 0% during the pandemic years and had already been historically low in the decade preceding that period.
According to Moynihan, the Fed's approach suggests they are prepared to initiate cuts to sustain economic growth and avoid potential downturns. He noted, "Basically [the Fed is] saying they're going to have to start cutting because they have the space to cut and so the economy can keep growing. And the last thing they want to do is tip this thing over. They have to start cutting unless the drag gets too strong."
Following an aggressive series of interest rate hikes over the past year and a half, the Federal Reserve has recently paused its actions. Having raised rates by 525 basis points to cool the economy and lower inflation, concerns have been raised about high rates tightening financial conditions and potentially triggering a recession. Economists at the New York Fed have suggested a 63% chance of the economy entering a recession by the end of the year. While markets are currently pricing in a near-100% chance that the Fed will maintain unchanged interest rates during its upcoming policy meeting, there is still optimism in the market for aggressive rate cuts by the end of the year, with the potential for as many as seven cuts, according to the CME FedWatch tool.
