Friday, May 24, 2024

Bank of America CEO predicts “soft landing” for 2024

The economy appears headed toward a coveted soft landing – and not a recession – in the coming year, says Bank of America CEO Brian Moynihan.

“So our team has the economy slowing down but staying in a positive growth mode for the first, second and third quarters” of about one-half percent before picking back up at the end of 2024, says Moynihan. “That’s the definition of a soft landing,” he added.

Moynihan offered his thoughts on the economy before more than 500 Charlotte business and civic leaders at the Charlotte Regional Business Alliance’s Annual Outlook meeting. He was joined by Lowe’s CEO Marvin Ellison and Ric Elias, founder and CEO of Red Ventures, the privately held online marketing company based in Fort Mill, South Carolina. The event took place at The Revelry at Camp North End.

Elias started the conversation by repeating a Labor Department report released earlier Tuesday that annual inflation growth had slowed to 3.1%, but not quite the 2% growth the Fed has hoped to achieve by hiking interest rates.

“It looks like the Fed is going to nail this thing with a soft landing after all,” Elias told Moynihan and Ellison.

Moynihan predicted that the Federal Reserve would reduce interest rates three times in 2024 and four times in 2025 for an overall reduction of 1.75%. The Fed has raised interest rates 11 times – starting in March 2022 and ending in July 2023 – to try and curb inflation, which hit 40-year highs this summer. The Federal Reserve’s current interest rate of 5.25% to 5.5% is a 22-year high.

Consumers have adjusted their spending in response to higher inflation and slower wage growth, but they remain in pretty good shape, says Moynihan. Home prices remain up, and consumers still have room to borrow even as credit card debt has topped a record $1 trillion, Moynihan says. Unemployment rates below 4% have helped keep the economy resilient.

“It’s hard to have a recession if everybody is working and making money,” says Moynihan.

Higher interest rates have less influence on the home improvement business than the housing sector, Ellison says. Lowe’s “core customer” has $340,000 in home equity with a fixed interest rate of below 3.5%, he says. That helps incentivize people to stay in their homes.

“You’d rather make a home improvement investment than go out in a higher-interest rate environment to get a new home,” says Ellison. The median age of a person’s home is a record 41 years, he added, as more people “age in place.”

Home improvement stores saw people buying outdoor furniture and barbecue grills during the pandemic when they were forced to stay home. Since then, discretionary spending has gravitated toward restaurants, concert tickets and traveling, Ellison says. Still, 75% of items sold at home improvement stores are non-discretionary.

“In other words, whether you want to buy it or not, you don’t have a choice. If your refrigerator stops working that is not an option,” says Ellison. “That is the essence of home improvement.”

Reducing the interest rate will grow the overall housing market and economy, says Ellison.

While Moynihan says the rate will decrease, homebuyers shouldn’t expect to see banks returning to 3% mortgages. Part of the problem, he says, is that no one under the age of 40 has ever seen real interest rates before now. He admitted that statement makes him sound like a “curmudgeon.”

“Everybody’s getting worked up about, ‘Oh my god, rates are high,’ but they’re really low in the grand scheme of things,” says Moynihan. “So there’s a mental adjustment that’s got to go on and that mental adjustment will go on when people get used to a 6% mortgage. It doesn’t feel good when you come off of 3.”

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