Consumer Spending Signals Strong Demand
Bank of America CEO Brian Moynihan said Wednesday that strong consumer spending in early 2025 suggests the Federal Reserve may not cut interest rates anytime soon. The bank’s retail customers have spent about 6% more in the first 40 days of this year compared to the same period in 2024, indicating resilient demand.
“That’s driving price firmness, demand firmness,” Moynihan told CNBC’s Leslie Picker. “You’re seeing activity that says that we’re probably in a period where rates are going to stay … where they are for a while until this settles in.”
Hot Inflation Data Reinforces Rate Expectations
The Bureau of Labor Statistics reported a higher-than-expected increase in the Consumer Price Index (CPI) on Wednesday, adding to the argument that rate cuts may be further down the road. Inflation remains a persistent concern for policymakers, forcing markets to reconsider expectations for monetary easing.
The Federal Reserve initiated a rate-cutting cycle in September 2024 after first raising interest rates aggressively in response to post-pandemic inflation. However, the latest data suggests that inflation is still too high for the Fed to justify further rate reductions.
Fed’s Approach to Inflation and Monetary Policy
Despite interest rates being considered “restrictive,” Moynihan noted that inflation has not eased enough to warrant a rate cut just yet. “Rates are restrictive, but there was not enough sort of inflation progress that we made,” he said.
Bank of America’s research team expects the Federal Reserve to hold off on rate cuts for the foreseeable future, as inflation remains stubbornly above the Fed’s 2% target.
What’s Next for the U.S. Economy?
The Fed’s decision-making process remains highly data-dependent, and upcoming economic reports will be closely watched for any indication that inflation is cooling. While some economists had previously anticipated rate cuts in the first half of 2025, recent inflation figures and strong consumer spending could delay those expectations.
With the economy showing resilience and demand remaining strong, the Federal Reserve may choose to wait longer before making any significant policy adjustments. Investors and businesses will now be looking ahead to future economic data releases and Fed meetings for further clues on the central bank’s next steps.
