Brian Moynihan, the CEO of Bank of America, says higher interest rates reflect a strong U.S. economy. Wall Street's most hawkish bank expects the Fed to raise rates three times under Chair Kevin Warsh. Yet Moynihan told Fox Business that a recession is nowhere in sight. Higher rates, he argues, are needed to control inflation and should be celebrated.
Bank of America has issued the most aggressive rate-hike forecast on Wall Street. Its research team predicts the Federal Reserve will raise the federal funds rate three times. The federal funds rate currently sits between 3.5% and 3.75% after the Fed left it unchanged in a unanimous 12-0 vote.
Asked by Maria Bartiromo whether rate hikes would lead to a recession, Moynihan responded: "No, because at the end of day, that's the balance the Fed has to have, is they're trying to keep the inflation from getting out of control, price stability. And Chairman Warsh made it clear that's what he stands for."
Moynihan said, "The U.S. economy is growing better than most." He continued, "The inflation is higher than people want it to be, but if you talk to people who are in the positions Kevin's in… they could never get inflation back." He further stated, "They're sort of saying, 'Wait, we can never get the economies to recover fast enough.'" Finally, he added, "I think it's easier to bring it down carefully than it is to get it going, and so you want to air a little bit to the upside."
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The Fed under Chair Kevin Warsh has made price stability its top priority. Warsh assumed the role after the Fed implemented three consecutive quarter-point rate cuts in the final months of the preceding year. Then the Fed paused. It kept rates unchanged in January, March and April of this year before the July meeting.
Moynihan explained: "We have a great research team… They've also put three Fed raises on the table, meaning that the inflation is going to be stickier, go[ing] all the way through '27 into '28, largely just to deal with the aftermath of the oil price shock."
The war in Iran has sent crude oil prices soaring, adding a persistent upward pressure on consumer prices. This supply-side shock makes the Fed's task more difficult, as it must weigh the risk of stoking inflation against the need to support economic growth. Moynihan's forecast of elevated inflation through 2028 reflects this challenge.
The Fed's decision to hold rates steady in July came after a series of cuts earlier this year, marking a shift under Warsh. The conflict in Iran has created a supply-side shock that complicates the central bank's inflation fight, aligning with Moynihan's view that price pressures will persist.
Kevin Warsh, the new Fed Chair, is focused on keeping inflation under control. The unanimous 12-0 vote to hold rates steady shows the committee is aligned. Moynihan said the Fed must balance price stability with the risk of rising unemployment.
"But at the end of day, the economy has grown a little faster now than they thought it was going to grow a few months ago," the CEO said. "Inflation will take a while, rates will be higher. But everybody argues for rates to be high or low. At the end of it, rates are an outgrowth of a very strong economy in the United States and a need to keep inflation in check."
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