Consumers and businesses have become cautious

American consumers and businesses have become cautious about their spending this year due to high inflation and interest rates bank of America CEO Brian Moynihan.

Whether households or small to medium businesses, Bank of America customers are slowing down purchases for everything from hardware to software, Moynihan said Thursday at a financial conference in New York.

Consumer spending through card payments, checks and ATM withdrawals has grown about 3.5% this year to about $4 trillion, Moynihan said. That’s a sharp slowdown from the nearly 10% growth rate in May 2023, he said.

“Both of our customer bases, which have a lot to do with how the American economy is going, are saying, ‘You know what? I’m being cautious and slowing things down,'” Moynihan said, referring to consumers and businesses.

The slowdown started last summer and is consistent with the “very low growth” environment from 2016 to 2018, he said.

Nearly a year after the Federal Reserve’s last rate hike, consumers and businesses are struggling with inflation and borrowing costs that remain higher than they are used to. The Fed began its efforts to curb inflation by raising its policy rate from March 2022, hoping this could slow the economy without tipping it into recession.

Many economists believe the Fed is on track to achieve this feat, helping the stock market reach new highs this year. But consumers are still struggling with higher prices for goods and services, and that’s impacting American businesses McDonald’s to give retailers discounts if Americans change their behavior.

According to Moynihan, food buyers are increasingly visiting retail locations in search of deals. “They’re going to three grocery stores instead of two is one of the statistics we’re seeing,” he said.

The now tepid growth in overall spending is supported by travel and entertainment, while “other things have subdued, except insurance payouts,” Moynihan said. Rent payment growth has slowed, he noted.

“We need to keep consumers engaged in the American economy because [they’re] such a big part of it,” Moynihan said. “They’re getting a little bit weaker, and that’s because of everything that’s going on around them.”

The same goes for small and medium-sized businesses, according to the CEO of Bank of America. His company is the second-largest U.S. bank by assets JPMorgan Chase. Moynihan and other bank CEOs have a bird’s-eye view of the economy, given their coverage of households and businesses from coast to coast.

Business owners say, “I still feel good about my overall business, but I’m not hiring as much. I’m not buying equipment as quickly. I’m not making software purchases as quickly,” Moynihan says.

The bank’s economists believe it will take until the end of next year to bring inflation under control and that the Fed will start cutting interest rates later this year, Moynihan said. The U.S. economy is likely to grow around 2%, avoiding a recession, he added.