BofA "Federal Reserve to Raise Interest Rates in September, October, and December"

▲ US, interest rates/AI generated image

U.S. consumer spending continues to show a stronger-than-expected trend. Amidst this, Bank of America (BofA) has suggested the possibility of three interest rate hikes by the Federal Reserve this year.

Bank of America CEO Brian Moynihan stated in an interview with CNBC on August 5 (local time) that customer spending in July increased by 5%. He said that this growth rate aligns with the U.S. economy's 2.5% growth trend, adding, “As consumers continue to participate in economic activity, the U.S. economy is also moving forward.” He explained that wage growth for low-income earners was slightly higher than that for middle and high-income earners, and spending also increased, narrowing the consumption gap across income brackets.

By consumption category, cruise and travel spending showed strength, gasoline spending increased, but food spending slightly decreased. Moynihan assessed that consumers are adjusting their allocation across categories rather than stopping spending, and household debt burden is not as high as market concerns. However, he pointed out that the burden surrounding housing costs, rent, insurance premiums, food costs, and gasoline prices are factors that shake household sentiment, regardless of actual spending behavior.

Moynihan stated that oil prices could move in the range of $60 to $100, and companies desire long-term predictability rather than specific price levels. He emphasized that if consumers and businesses perceive rising oil prices as a temporary phenomenon, they will not significantly alter their spending and investment decisions, but uncertainty will not disappear until diplomatic negotiations are concluded and remain stable.

The monetary policy outlook was more hawkish than the market's. Bank of America researchers expected the Federal Reserve (Fed) to raise interest rates in September, October, and December, respectively. Inflation is projected to fall to the mid-2% range by the end of 2027 before entering the target range. This year's economic growth rate was presented as 2.4%, with a second-half growth rate of 2.5%. Moynihan said, “Since the labor market is very healthy, we must focus on continuing to bring down inflation,” adding that the growth momentum can withstand interest rate hikes.

Even if interest rates rise by a total of 0.75 percentage points, investment in AI data centers is not expected to slow down significantly. Funds for data center construction are primarily sourced through long-term bonds rather than short-term loans, and the expected returns for related businesses are high. Moynihan stated that the impact of short-term interest rate fluctuations on long-term funding rates is limited, predicting that data center expansion will continue for some time.

[Key Article Summary]

-Bank of America customer spending increased by 5% in July, and wages and consumption for low-income earners also grew relatively quickly.

-Bank of America expects the Fed to raise interest rates three times in September, October, and December.

-Moynihan judged that even if interest rates rise by 0.75 percentage points, investment in AI data centers will continue based on high expected returns.

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