Bank of America CEO on interest rates, tariffs and Trump’s second term

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• Geoff Bennett:

  The U.S. economy continues to perform well by many measures. Retail spending was up notably around Black Friday. Markets are at or near record levels and unemployment remains low.

  And yet most Americans have long felt the economy is not doing well for them. All of this is front and center as president-elect Donald Trump is set to implement an agenda heavily focused on new tariffs, cutting regulations and extending tax cuts. The Fed is also expected to cut rates again this month, decisions watched closely by businesses, investors and lenders.

  Let's get some insight now from Brian Moynihan, the CEO of Bank of America, who joins us now.

  Thanks for being here.

  Brian Moynihan, CEO, Bank of America: It's great to be here.

• Geoff Bennett:

  So, as we talk about the state of the economy, one key indicator is consumer spending. And we have some fresh data on that front.

  On Black Friday, Americans spent nearly $11 billion online. That shattered a record. Travelers heading home after the Thanksgiving holiday set a record on Sunday. Airport TSA screened more than three million people. So it suggests that Americans have disposable income. What does that say to you about the overall strength and stability of the U.S. economy?

• Brian Moynihan:

  So, if you back up to the big picture, the U.S. economy is driven by consumer activity, big final demand, largest economy in the world. Consumers spend. They earn well. Our purchase power on a global basis is high.

  So it's key that the U.S. consumer stays in the game and spends. And so from our data, Black Friday was up probably high single digits, double digits. The month of November, all month is up 4 percent. That's a good, healthy level consistent with a strong consumer sentiment. And the consumers expect to spend about 7 to 10 percent more in their survey this year than they did last year.

  And so that, being said, with inflation worries and prices being up, there's a lot of, wait a second, I'm paying more for this than I did four years ago. But that's a natural human reaction to rapid price increase that occurred in the inflationary period of '21 and '22. That is now more under control, but still people don't forget the past.

• Geoff Bennett:

  And is that how you reconcile those widespread anecdotes with people struggling with higher prices? I mean, that's what we heard in the lead-up to the election. That's what people seem to indicate with their vote. That's how you explain that disconnect?

• Brian Moynihan:

  I think you explain that disconnect. But I always — I'm always a person to say, follow what they do, not what they say.

  So surveys and all the work that we all do, you look in and say, in the last week, including Thanksgiving, they spent 10 percent more than last year in that same week. And I think they were feeling OK last year. It's a record number and all the things you rattled off. So if that's what they're doing, they can't be that worried.

  Now, what's happened is they shift around. So gas prices have come down. They have re-spent that elsewhere, a little more on clothing and cosmetics and luxury goods in the purchases, more online than not online. But that's a phenomenon that's been going on in years. That's not an unusual phenomenon.

  So if you put that all together, the American consumer is healthy. They're employed. Unemployment is 4.1 percent. The wage growth is still stronger than inflation rate. But they're still going to remember I paid $3 for that. Now I'm paying $4 for that. That doesn't sound right to me.

• Geoff Bennett:

  Meantime, the Fed is getting set to meet again. They're going to consider cutting rates again. What are you hoping to see in the way of more rate cuts into the next year and to what level?

• Brian Moynihan:

  The research team, which is one of the best in the world, basically has a cut in December and then maybe three or four cuts next year.

  That's come down, meaning less cuts, because, as the belief that the economy is strengthening, and they have raised their estimates of GDP growth in the early part of next year like 100 — from 1.5 percent to 2.5 percent for annualized growth in the quarter. That's a big movement up.

  The United States, 2 percent plus or minus, when you get above that means we're growing faster than sort of trend. So they believe those rate cuts will be slower, largely because inflation is under control, and large — but the Fed is going to keep erring to make sure they keep inflation under control.

  And as that strengthening economy comes, that actually puts purchase power into the economy and inflation impact. So they have got to keep it balanced. What would be wholly different than anybody that entered the business world after the financial crisis, after 2007-2008 is, we will probably see an end point, a Fed funds rate in the 3.5 percent range, which is more what it was for a long time in history.

  We just haven't had it in a long time. And that's going to be wholly different for people to really think through. The mortgage rate, people see 6.5 percent, 7 percent, oh, my gosh, it's so high. My first mortgage was 18, 19 percent. And I don't mean to sound like a curmudgeon, but that was the reality back then.

  And so that rate in the absolute terms is high based on the last 15 years, but in the absolute terms based on the last 40 years is much lower. So the Fed's bringing those rates down. But the good news is, if the rate structure stays a little higher, it means our economy is actually healthier.

• Geoff Bennett:

  One complicating factor on the horizon, president-elect Donald Trump has made it clear he plans to implement significant tariffs.

  Most economists agree that this tariff plan could boost prices for consumers and make inflation worse, but they seem to disagree on how much. How do you see it?

• Brian Moynihan:

  It really depends on what else happens. Right now, they're saying, if that tariff, 10 percent, the type of tariffs that were talked about during the election cycle, is coupled with deregulation and other things, corporate profits will be relatively neutral and they will feel OK about it.

  And that means they may not pass through the price, because, at the end of the day, the tariff comes through and then the distributor of the bicycle or whatever it is will decide whether to pass through that price or not. They won't pass through that price if there's other benefits and it's a competitive market out there.

  They will pass it through if there are not other benefits. So our team thinks it's balanced, not by the impact of the tariffs only. It's balanced by the impact of other measures. So the question will be — everybody will focus on a tariff number because that's sort of easy to identify the number. The question is what's the package and how it works in sync.

  And then the real question will be, will businesses pass through the tariff or eat it because they can get profit margins through lower financing costs, through growth, through other things? And so it's a much more complex question. Our people say it's relatively balanced in terms of how it affects businesses' bottom lines.

  And then businesses will always be trying to make more revenue and that means more sales. That means they will use price as a lever, so it ought to work through. But, near-term, it'll raise prices. It's a question of when they get offset.

• Geoff Bennett:

  We are hearing reports of companies shifting their spending and shipping plans in advance of what they fear might be another trade war.

  I know Bank of America has relationships with 95 percent of the Fortune 1,000 companies. What are you hearing from business leaders?

• Brian Moynihan:

  The reason people are careful is that we have all learned something in the pandemic about supply chain interruption. And so supply chain interruption because of tariffs where people sort of stop and aren't sure of the demands, they quit shipping. You can't get stuff, people quit making stuff because they don't think it's going to have demand, factories slow down.

  That whole mix is a pretty powerful memory for people because, at take end of the day, think about surgical masks. You had all the hospitals that were out of surgical masks. And you're sitting there saying, wait a second, how could we be out of surgical masks? It's kind of — and the reason is they're made in the sector of China that was shut down because of the pandemic.

  So they have to figure out how to make sure they have supply. So what do they do? They go out and grab all the supply they can, figuring that will then give them an extra three or four months if this thing gets into a battle and then mitigates. So that's natural human behavior.

  But shifting supply around, which is one of the questions about and the goals of the tariff plan would be to shift supply to other countries, Vietnam, Indonesia, Mexico, and other places. And the second goal would be then to make sure I have adequate supply at any cost, because when I don't have anything to sell, I don't care what I'm doing. I can't make any revenue. So I have to get ahold of it.

  That's what you're seeing some of the behavior. This is all temporary. In six months, this is all through the system. And then you have to adjust to the reality of a long-term thing, because you can't buy next year's Christmas buys. You don't know what you want to buy. So it's really a temporary element.

• Geoff Bennett:

  The president-elect is also saying he's going to bring in Elon Musk and Vivek Ramaswamy to cut federal spending and to make government more efficient, as they see it.

  Do you have any concerns that indiscriminate budget cuts could affect economic growth?

• Brian Moynihan:

  You have to be careful in the broadest context because the federal government's another component of the economy. So if you shrink it, the question has to be made up by the private sector and other places.

  The theory is, it will be made up by other places because at the end of the day, it's debt-financed, which is squeezing out other forms of financing. You can make any place more efficient. Every year, we make our company incrementally more efficient. And we're not — when the team took over in 2010, our costs were in the 60 — high 60s, $70 billion.

  Here we are, 2024, and we will be in the mid-60s billion. So think about that. That was for efficient and working digitization, automation, everything. So I'm confident they can get there, but you have to do it in a rational fashion that ensures it sticks to the ribs. Otherwise, if you cut it, it'll come right back.

  And that's — the challenge for the government is, can you get the cuts to stick to the ribs? And that will be an interesting dialogue. Other people have thought they could do this. It's — we have been around.

• Geoff Bennett:

  Al Gore tried to do it back in the '90s.

• Brian Moynihan:

  Ronald Reagan was going to do it. Al Gore was going to do it. George W. Bush was going to do it. Barack Obama was going to do it. Everybody was going to make government more efficient, even in — and it's hard because there's complexities to it.

  At the end of the day, they're serving the American people. So can it be more efficient? There's no question. You have to do it carefully so you don't disrupt service. And I wouldn't worry about the economic impact as much as I worry about we got to make sure the core services operate, the IRS runs properly, the banking regulatory authorities run properly, the SEC runs properly, because capital formation comes in.

  But on the other hand I guarantee you, with any company, any enterprise, this enterprise, there's always efficiencies you can gain if you go at it the right way, by eliminating the work to be automated. Then you can get the efficiencies that stick.

• Geoff Bennett:

  Brian Moynihan, CEO of Bank of America, thanks so much for being here. Pleasure to speak with you.

• Brian Moynihan:

  Thank you.