Moynihan cites the strength of consumer spending, despite inflation that has been four decades high and concerns about the economy and pandemic. The bank’s January credit and debit card spending was 17% higher than a year ago. This is despite January being slower than usual after the holiday shopping frenzy.
Moynihan talked to the Associated Press about the data and his thoughts on inflation as well as the Federal Reserve’s upcoming interest rate hikes. This interview has been edited to be more clear and longer.
Q. Why are you concerned about January’s higher spending?
Brian Moynihan – So far, the consensus is that consumer spending increased substantially in the fourth quarter. This trend seems to be set to continue. Our clients are spending more on credit, suspending credit and debit cards. Cash is being pulled from ATMs. The economy has remained strong. Some of this payment growth could be us gaining market share over our competitors. But 17% growth indicates that there is some behavior change happening, even in a strong growing economy.
Q. Could higher consumer spending be due to inflation?
The stimulus has helped consumers to have more money in their accounts. Inflation is still a problem for consumers. Our data also shows that the number of transactions has increased by almost 10%. This is a strong result. Inflation doesn’t cause anyone to spend three times as much.
Q. Is the increase in spending due to consumers borrowing money or putting more money on credit cards?
The consumer account balances are growing. This means that higher wages are a net benefit, even as their spending is rising. They aren’t using leverage to do it. Take a look at your credit card balances. The credit card balances are still 15% below the pre-pandemic level. However, if you examine the payment rates for those credit cards balances, you will see that they still run at a very high interest rate. This to me suggests that consumers aren’t taking out debt to continue their spending.
Q. Why is strong consumer spending good for the economy?
They’re still spending, even though stimulus has mostly ended. Consumer spending accounts for two-thirds the economy. Is that going to lead to inflation, supply-chain disruptions and labor shortages? The Fed must do what they have promised, which is normalize interest rates. We had a strong economy before the pandemic and our interest rates were two points higher. This economic growth is expected to slow but will be driven by normalizing Fed monetary policy.
Q. How can businesses cope with inflation?
Talking to small businesses, and we are the largest SBA lender in the country so have spoken to almost everyone — you will hear that the main issues are labor costs and labor shortages. Supply-chain shortages are the biggest constraint to growth.
