The Fed has to start cutting rates to avoid tipping the economy over, and 8 cuts are coming in the next 2 years, Bank of America chief Brian Moynihan says
- The Fed will slash interest rates eight times over the next two years, Bank of America predicted.
- Officials will want to avoid "tipping the economy over" with its policy, BofA CEO Brian Moynihan said.
The Federal Reserve could end up slashing interest rates eight times over the next two years to prop up the US economy, according to Bank of America CEO Brian Moynihan.
Bank of America is forecasting that the Fed will issue four rate cuts in 2024 and in 2025, Moynihan said in an interview with Bloomberg on Thursday at the World Economic Forum. That implies 200 basis-points of rate cuts to come over the next few years, taking the Fed's benchmark rate down to the 3.25%-3.5% range.
Those cuts will be necessary to buoy the US economy, Moynihan suggested, which has slowed by many metrics since the Fed sent borrowing costs higher in 2022 and 2023.
And while eight cuts may seem like an aggressive pace of monetary easing, the Fed slashing interest rates at that caliber actually would still be keeping rates higher-for-longer to control inflation, Moynihan said, given that rates hovered just above 0% during the pandemic years, and had already been historically low in the decade before that.
"Basically [the Fed is] saying they're going to have to start cutting because they have the space to cut and so the economy can keep growing. And the last thing they want to do is tip this thing over," Moynihan said. "They have to start cutting unless the drag gets too strong."
The Fed has hit pause at its recent meetings following an aggressive year-and-a-half of interest rate hikes. The central bank raised rates by 525 basis-points to cool the economy and lower inflation.
But high rates tighten financial conditions and could spark a recession, experts have warned. New York Fed economists are pricing in a 63% chance the economy could tip into a recession by the end of the year, up from approximately 50-50 odds a month ago.
Fed officials begin their next policy meeting on January 30. Markets are pricing in a near-100% chance that the Fed will keep interest rates unchanged, but are still bullish on aggressive rate cuts by the end of the year, with markets eyeing the potential for as many as seven cuts, according to the CME FedWatch tool.