Bank of America Managing Director Brian Moynihan expressed concerns about the potential impact of the Federal Reserve’s interest rate policy on consumer sentiment and the former President Donald Trump‘s idea of presidential control over the Fed’s interest rate decisions.
What happened: Moynihan warned in an interview with CBS on Sunday that consumer confidence could decline if the Federal Reserve does not initiate interest rate cuts in the near future.
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The Federal Reserve has kept interest rates at 5.25-5.50% for over a year, but hinted at a possible rate cut in September if inflation continues to fall.
“They’ve told people that interest rates are probably not going to go up, but if they don’t start lowering them relatively soon, that could discourage the American consumer,” Moynihan explained. “Once the American consumer starts getting very negative, it’s hard to get them back.”
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Moynihan also addressed the issue of the president’s influence on the Federal Reserve and the chairman. Jerome Powellin response to a statement by Republican candidate Trump. He emphasized how important the independence of the Federal Reserve is in the global economy.
“I think if you look at economies around the world, you will find that economies with independent and freely operating central banks tend to do better than those without that ability,” Moynihan said.
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Why it is important: The context of Moynihan’s comments is crucial. Recently Brad FallChief Economist at Communities in Middleburgsuggested that a rate cut may not be imminent. He stressed that continued economic weakness is necessary before a rate cut, and highlighted that consumer spending and income growth remain robust.
In the meantime, Jeremy SiegelFinance Professor at the Wharton Schoolhas changed his stance and is now calling for a rapid cut by the Fed to 4%, from advocating an emergency rate cut. Siegel believes that while an immediate cut is not necessary, a rapid cut would benefit the economy.
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The complexity is increased even further, Jamie DimonCEO of JPMorgan Chase & Coremains skeptical that the Fed can achieve its inflation target of two percent. He estimates the probability of a soft landing for the US economy at 35 to 40 percent, which suggests that a recession is more likely.
economist Claudia Sahm has also pointed to the increased risk of recession, thereby strengthening the argument for interest rate cuts, even though its own recession indicator does not signal an immediate downturn.
Additionally, Mohamed El-Erian noted that market conditions could push the Fed to cut rates by 50 basis points in September, with traders increasingly expecting a more aggressive cutting cycle.
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This article: After Trump proposes presidential control over Fed rate decisions, Bank of America CEO says Jerome Powell’s independence is crucial: ‘Independent and freely acting central banks tend to perform better’ originally appeared on Benzinga.com
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