MARGARET BRENNAN: Well, thank you for making time.
BANK OF AMERICA CEO BRIAN MOYNIHAN:
It’s wonderful to be here. Good to see you again.
MARGARET BRENNAN: I want to talk to you about the state of the economy, because our CBS polling is showing that most Americans asked this question say their https://ashdigitalskill.com/holiday items are hard to afford.
BRENNAN:
They’re pulling back because incomes are not keeping up with inflation. But it’s a completely unique story. When you look at the upper income brackets, I know you see data about actual transactions. Are people doing what they tell us they’re doing?
MOYNIHAN:
So—so we not only see it in the aggregate, we also see it in pieces. And so if you look in the aggregate, the amount spent through the Thanksgiving weekend, on, you know, Black Friday and Cyber Monday, through all of the month of November and the first part of December, it’s – it’s up four, four and a quarter, or four and a half per cent versus last year’s November. And so it’s growing. And then if you look by terciles, three buckets of income levels, it’s clear the people in the bottom income level, at lower income levels, are spending at a little faster growth rate, but still growing, and in the middle and upper faster. So, you know, what they’re telling you is what they feel; what they’re actually seeing is spending is really solid, reasonably solid heading into the end of the year, and it’s been kind of going along like that all of December. Now, wages have grown, but inflation bothers people. Jobs are, you know, the unemployment rate’s very low, but it’s been rising. So there’s a lot of discussion in there. At the end of the day, people are spending because they have good credit quality. They are employed and wait – we can see wages growing as people’s pay cheques come in at a 3% clip. So it’s – it’s pretty solid right now.
BRENNAN: Is that still, though, stilted towards the upper income brackets? Is it that K-shaped economy some people talk about–
MOYNIHAN Our team puts the – look at this. Yes, the growth rate difference is higher, but all of—all of the third, a third, a third—all three thirds are growing.
BRENNAN: And you think that will continue?
MOYNIHAN: That’s been continuous. And so that’s the question. They grow at different rates, but they’re all growing, which all means they’re putting more money in the economy than they did this time last year.
BRENNAN: Why do you think people have sentiment that’s low but spending that’s higher?
MOYNIHAN: It’s – you hear about it, you’ve talked about it. It’s this question of affordability and prices and trying to figure out how that happened because we had a very, a very strange process from 20 through now; we had COVID lockdown, then we had all the stimulus, and we had high inflation, and then we had wages catch up to it. And if you draw a line and say, ‘Here’s wages, and here’s spending, and here’s price growth,’ they stay in sync across a long period of time, but they went at different times, and so they saw the inflation in 20, 23 and 24, and that was on their minds, and they want to see it subside, and it’ll take a little while to subside. But as you go into 26, having come through 25, the incremental hit of that would be lower. And even when the Fed looks at it, they think inflation keeps working its way down. But it’s – it’s what people feel, and you can’t discount that. And it’s also at certain job categories and stuff; there’s been more dislocation, and that’s due to some of the government downsizing and some of the other things going on. But, but it’s, it’s not widespread at four, you know, 4.6% unemployment in the last number they published; that’s still in the—in our business careers—is actually a very low unemployment rate, frankly.
BRENNAN: And what do you see then as the biggest risk to the economy?
MOYNIHAN Well, when you look out ahead, it’s – it’s – it’s the question of wars. Another thing that could really shake up the markets is But the real question is, will the consumer keep spending in the US? We have the US economy growing about 2.4% next year. We have in, but that’s dependent upon a consumer that stays engaged. If the consumer becomes less engaged as we move into 2026 from 2025 and slows down their spending. That’s going to slow down the economy. So that’s a risk. You just don’t see it anywhere now. The second risk is wars and other things that could go on that could create shocks to the market. And you know, then there’s the usual stuff, cyber events and things like that. But the real risk is, will the Americans, if the companies of America employ people and pay them a little bit more, spend? The economy in the US will be fine, and then you have these investments in the stimulus from the, uh, tax act, and you have the stimulus from some of the investments coming in that keep kicking in. And that’s why our team went from one and a half per cent, probably four months ago, to two and a half per cent, 2.4% for 26 now, yeah.
BRENNAN: Okay, so in the past year, with trade and tariffs, there were a lot of shocks to the system. It was a big concern, but Bank of America now projects President Trump’s strategy is one of de-escalation, not escalation. Does that mean you see this trade war with China cooling off?
MOYNIHAN: Well, I think – if you go back to where we were in April, there was a lot of lack of understanding about where this would end up, and that affected small businesses-–
BRENNAN: There was shock–
MOYNIHAN: –and medium-sized businesses–
BRENNAN: There was shock.
MOYNIHAN: They were shocked.
BRENNAN: There was shock on liberation day.
MOYNIHAN: The sheer size, the volume, the dollars, across the board, et cetera. What you say now, as times have moved on, is sort of a 15% on one side, and then a higher number based on people who won’t commit to purchasing from the US or won’t commit to lowering their non-tariff barriers and things like that. And so the question, when I talk to foreign governments and they ask you the question about what this all means – or foreign CEOs – you say, ‘Look, you’ve got a choice.’ You can be here or be here. You just have to make the choice. You’re going to be driving more towards America, and you will come down to 15% to go from 10% across the board to 15% for the broad base of countries, not a huge impact. And that’s where our team says it’s starting to – it’s starting to de-escalate, and that you’re starting to see the resolution of the discussions into 15% here and 17 different numbers. When you put China in, China’s a different question because of the national security interests, the rare earth minerals, the magnets, the batteries, just AI, and all that stuff. It’s a very different case. And I think also between Mexico and China, the USMCA, which has to be redone, is also a different case. But broadly in the world, you can see sort of the end point here and now they’ve just got to (INAUDIBLE) – it’s got to work through the system.
BRENNAN: How much of a toll has that taken on small businesses? I understand B of A is the largest small business lender.
MOYNIHAN: So we’re the largest small business lender. If we were sitting here in the second quarter of this year, it would be a big toll. They were very because rates have gone up, and that costs them more money because they borrow on revolving lines of credit. In other words, they borrow a floating rate, and then the tariffs came in and caused them I’m not sure I can get the goods at what price and how can I commit? But as you went through the year, rates came down a little bit, so they’re more their issue right now. Can I get the labour I need to do, to bid the contracts, to do the work I’m doing? Because the immigration policies haven’t settled in yet, and that’s causing people concern. It’s not that they agree with them or are disagreeing. They just need to have the answer, and that’s what they’re looking for. So if you think across four policy regimes: tax-trade-tariff, immigration, and then ultimately, deregulation. You’ve seen a resolution of a lot of them, but I think the next one for small businesses, what they tell us, is labour availability. How they get there is, I need people to do this work, and I need to be dependable. They’re here. So give me a set of rules and I’ll go play with them. But I need to have clarified what the rules are.
BRENNAN: The labor scarcity issue – people just can’t find folks–
MOYNIHAN: The dependability and people who are probably not anything to do with what the policies are about feel differently, and that’s if they don’t feel they can go to work, if they don’t feel they can do things – that just has to resolve. And small businesses are generally most impacted because they don’t have our wonderful research team to figure it all out and talk and talk to the big clients who have other teams to do it, and that’s trickier. So I think, and by the way, the administration understands that they’re working on it; they’re trying to figure out how to get that part put together so it’s clear what the policies will be and won’t be so that, or so that, or, more importantly, so that, really, the people that are ill settle down, but that that issue of labour, a 2023 issue after the Great Resignation, disappeared from small and medium-sized businesses and came back in literally because of where we are from this summer on.
BRENNAN: One of the other big factors, it seems, in the jobs market is this question of artificial intelligence. How much is B.A. relying on AI to do things like predict loan defaults or identify risks?
MOYNIHAN: Well, I believe that consumers at Bank of America experience AI primarily through Erica. So if you go on our mobile app, you’ll see there’s a bot there. It’s an agent. It’s been there for many years. It does 2 million customer interfaces a day. So it’s not small. 20 million customers actively use it. It can answer 700 questions. So that’s real and has been going on. And so that’s the way a customer would feel it. If you’re a corporate customer, you’d feel with Erica’s embed in our cash pro – so in your portal you go to as a company to make payments or FX transactions, and you want to ask questions, Erica is there. So that’s- that you’re asking about something different. We have used models for years for predicting defaults. So we do stress testing. Those are all models to predict the outcome. We have loss given defaults and default predictions. That’s all there. Can these help us become more informed? Yes, can they help different types of employees operate faster? Absolutely. So we’re deploying across all our teammates; AI have access to AI tools. There are specialised AI tools in certain areas, but we think the best use in the near term is either discrete process application or in helping us build intelligence to high levels. But to interface with a customer, you have to have your data right. You have to have the controls right, because you can’t give the customer the wrong answer, whether it’s ‘I’m going to approve your loan’ or not, and that’s why this will take a little more care to implement in customer-facing businesses with trust, which is what financial services is.
BRENNAN: Well, I ask it because there’s that question of how many human jobs get replaced, right? The recent Business Roundtable Survey of CEOs shows that while they are spending on technology and AI, they don’t expect hiring to increase. They see it’s actually reducing.
MOYNIHAN: So, so there are a couple of things that are what’s on people’s minds, and that’s when we talk to our teammates. We’re saying, ‘Hey, we’re going to bring AI and make it more efficient, and then we’ve got to produce more activity.’ And you don’t have to worry. If you capture AI and use it in your day-to-day work, that’s a great thing. And so it’s not a threat to their jobs. But on the other hand, I think people are now assuming they’re going to get benefits, and we’ll see if they get those benefits. But you know, if you think from 1969 to 2019, it was 50 years; a lot of technology came in. America employs twice as many people in 2019 as we did in 1969. So will this wind up? I don’t know, and nobody really knows for sure, because we haven’t ever had it. But on the other hand, there’s a capability in our company. The commercial bankers are calling on commercial customers. If they get 10% more efficient, we may not add a lot to grow, but that doesn’t mean we’re going to take away and get the efficiency – we want to grow. We want to drive more growth. So the AI will be spent – the efficiencies from AI will be spent to keep growing the company, I think.
BRENNAN: So, it’s a problem for the new college grad, but you’re probably not making layoffs, essentially.
MOYNIHAN: Yeah, well, we just hired 2000-plus new college grads in July, so it’s- we didn’t change the size of the class- my advice to those kids, if you ask them if they’re worried about it, they say they’re worried about it- these are kids that we hire, 200,000 applications, and we hire 2000 people. They came into our company. If you ask them if they’re scared, they say they are. And I understand that. But I say harness it, and you shouldn’t. It’ll be your world ahead of you.
BRENNAN: Let me ask you about the mortgage business. You’ve got a big one. The Fed says activity in the housing sector is weak. What do you see behind that hesitation?
MOYNIHAN: There are two parts to it. One reason is that the higher rate structure has slowed down activity. If people plan to sell their current house in order to purchase a larger one, they will face higher costs of borrowing. So that’s slowing down that activity. The second is building. And there are housing volume shortages all over the country. Some single – you could have a single family, multiple small multi-floor units, things like that. Or even more, bigger multi-family, major cities, but there’s a universal housing shortage, because for so many years it’s been hard to get housing permitted, and so the advice I give to anybody is you’re probably not going to see the 10-year rates go down. Our teammates think the Fed funds rate gets the low of three, but the tenure rate stays between four and four and a half, which means the mortgage rate won’t be a lot different than this today, but if you increase supply, you’ll keep prices flat, and wages will grow through it. And you’re starting to see prices have flattened out in many places. So you have to build supply, and you have to get permitting done, and you have to do that; that is probably the solution. Moving mortgage rates 50 basis points will not be a huge change. When you have a bunch of people with 3% mortgage rates, that’s not going to be changed. And by the way, for the American economy, we do not want to have an economy that has to have that low rate structure again, because that means we’re not growing, we’re not successful, and we’re probably offsetting a recession. So we shouldn’t be cheering for 3% mortgage rates. It was an anomaly that happened, and now we have got to get back to normal.
BRENNAN: Well, you do hear the administration talk about rates coming down being a good thing? You’re just saying it’s not a simple, quick remedy.
MOYNIHAN: Well, for the housing market, because there are 60 million – there are 130 odd million households in America, half of them don’t have a mortgage. This whole lock-in question is not even a relevant question. They rent, and so you have got to bring – rental affordability is a question. Or they own outright, and that’s a different question. They inherit a house, you know, third generation, or something like that. So it’s a very complex thing, but simplistically, if mortgage rates come down, people can pay more. The reality is, if prices come down, people have more affordability on that side. So I think it works itself through. But we had a very different rate environment for a lot of years, and that’s – that’s hard for people to think about, because people under the age of 40, 23, 24, no, were not out working in an environment where we had a 3% Fed funds rate, which is more the norm than not.
BRENNAN: So let me ask you about Fannie and Freddie. Taxpayers took a stake during the financial crisis in these mortgage lenders. The Treasury Secretary said that they are expected to return to the public market in the next year, with the government selling a portion of that stake. Does Bank of America have a role in that transaction? But – but for consumers, is that actually going to push up the cost of owning a home?
MOYNIHAN: I don’t talk about client relationships, but look, it will not increase costs if they keep the guarantee. And—and the administration knows that; Secretary Bessent knows that guarantee helps keep that mortgage rate down but also provides a 30-year mortgage. Because now, when you make a mortgage loan without a government guarantee for a borrower who may be on the qualification levels, it is more advantageous to borrow. You’re making a decision for the next 30 years that the borrower is going to be okay, or a lot of years. So that guarantee is critical to the U.S. getting fixed-rate mortgages and having a lot of mortgage availability, and then they’ve run things pretty responsibly since the financial crisis. Down payments have stayed substantial. So the credit quality of current portfolios is pretty good. And they can’t lose that, because that was the reason. One of the reasons why we had the financial crisis was the low down payments and lots of mortgage loans with zero equity in them. And as soon as prices on houses came down, the whole thing exploded, and all of America was affected. So I think they’re very mindful of all that, and I think – but they’re critical of the U.S. housing system. They always have been. They’re a great company. They’re an iconic company for the U.S., frankly, and now they’re put together and are running well.
BRENNAN: So the president has announced that he wants all these sweeping changes to the Federal Reserve. Chair Powell is set to retire from the job in May. For someone at home, how much does that job matter to the consumer? How do you explain that?
MOYNIHAN: Well, it’s one of the intriguing things. So the President’s going to appoint a new chair of the Federal Reserve. Presidents throughout – since the Federal Reserve was founded 100 plus years ago – have done that; it’s not new. He’s got great candidates. He’ll appoint somebody, and we’ll help that candidate get the information to be successful, and so we’ll see what he does. But that’s his prerogative. You know, that’s what he should do. There’s – in my mind – too much fascination with the Fed. We’re not – we’re a country – we’re a country that’s driven by the private sector, by what people do, and in the businesses and the companies, small companies and large companies, medium-sized companies, and entrepreneurs and doctors and lawyers – all these people drive our economy. The idea that we are like hanging on the thread by the Fed moving rates 25 basis points, it seems to me, is that we’ve gotten out of whack. And so we got to get – since the financial crisis, the Fed has had a big role in stabilising the economy. That’s what they’re supposed to do. That went away a number of years ago. It came back a little bit in COVID. They’re a lender of last resort. They’re there to stabilize markets and prices, but otherwise, you shouldn’t know they exist, quite frankly–
BRENNAN: –So you don’t worry about all this, you know, handwringing of political interference with the Fed, once that new position is–
MOYNIHAN: –The market will punish people if we don’t have an independent Fed. And everybody knows that.
BRENNAN: Let me ask you about Trump accounts. They’re trying to build generational wealth. The administration says by having these wealthy donors, state governments, and employers put money into these tax-advantaged accounts for kids as an addition to the federal government putting some money into some of them, are you going to have a role in that program? And what do you think more broadly about expanding the number of people putting money in the stock market, in these index funds?
MOYNIHAN: So I think number one, if—at our company starting 2017—we, after the tax act from that year, a lot of companies gave their employees a $1,000 bonus. We started doing something else the next year, which we kept going and I’ve gone since. So our 200,000-plus employees every year get an award of stock across the whole board, and that’s built up to be s–
BRENNAN: Many corporations offer restricted stock as a form of compensation.
MOYNIHAN: Yeah, but this practice has been ongoing for some time now. Many did it once, then stopped; very few continued extensively. And that’s like $6 billion of stock that has gone into those employees. And so I believe in stock ownership by everybody. I believe in holding that stock and appreciating it. And so we believe in that; we have a 401k that people can invest in, and we have a 7% match and all that stuff. These accounts, I think, are also good. The question is, you know, the parents have to make the contributions, and the government will put some money in, but the broader products available for parents, it’ll be good to save. But I think we shouldn’t – we should do this, but we also have to remember financial education. Because if you can get an education generally, in skills training, because if somebody could earn $10,000 more a year than they’d otherwise earn, or they can balance their budget and have a cash flow positive of $10,000. That goes on for their, you know, from their first job at 21 or 18 all the way through 65; that is a lot of money. Where this is for 18 years, it will be a lot of money, but it’ll be – it’ll stop where that will go on forever. So we need this type of work. And I expose the equity markets underinvesting in America and all those things, very low cost where the index funds don’t have basis points where they were saying that’s all the right way to do it. By the way, it was back to privatisation and Social Security in those days and that stuff.
BRENNAN: Is an index fund basically a way to do that? I mean, every baby suddenly has a stock market investment.
MOYNIHAN: It’ll—I mean, we’ll have to see. You and I won’t be around 50 years or 60 years from now; maybe you will be, but I won’t be around 60 years from now to think about it. But it – you know – it’ll, it’ll do that. But equity investment by people holding that and having to hold it so they can’t churn it and sell it. And that’s, that’s a good thing. So I think it’s a great product. I think it’s wonderful that people are stepping up and contributing to it. We all have to think about an employer, because we have that stock programme, which is several thousand dollars to employees. And, you know, we have our 401k match. And if we do this, how does that work? And stuff like that. But – and if you do it for kids, what do you do for the rest of the people? You have this question that not everybody in our company has kids. And so if I put the match in for – if I put the money for people with kids, what do I do with people without kids? So it’s a little more complex, but it’s a good thing, and I think we’ll figure out how to participate and make it happen.
BRENNAN: So back in August, when we spoke, you talked about these allegations of banks playing politics and discriminating against conservatives. You pushed back quite hard in that moment. But earlier this month, the Trump administration released preliminary findings about banks, including Bank of America. It’s a six-page report. The report mentions the environmental and sustainability-related decisions you made during the Biden administration. Do you feel you have to undo these? Have you undone them?
MOYNIHAN: A lot of them have been – have been undone or made more precise because the interpretation wasn’t actually what went on. So if you read the website, you could say, Oh, they’re doing this. And the reality was that’s not what was going on – never was intended. And so we don’t debank anybody for religious or political reasons. We made the policies clear so people could see it. We welcome all the input from the banking regulators and others. And we’ll, we’ll look at anybody who feels we—believe me, they—people have thought they were closed for reasons that they couldn’t understand. We’ve looked at that probably, you know, because customers can come to our company and say, ‘you’ve closed my account. why?’ And we can tell them. But I think people are forgetting the reason why a lot of this went on was that reputational risk was an assessment process that went on, and it was real. And, and believe me, you know, people would read the paper and say, You know, Jane Smith, John Smith, you’re doing business with them. They did something wrong. You must be a failure as a company, and therefore we’re going to write you up.
BRENNAN: That was during the Biden administration that kind of–
MOYNIHAN: –even–
BRENNAN: –social pressure you’re saying–
MOYNIHAN: –20 years ago–
BRENNAN: 20 years ago, okay–
MOYNIHAN: It’s been going on for a long time. It just kept building up, and then the second thing is that for AML and KYC issues, we had to close accounts. And so the level of a transaction was set in 1972 at 10,000 and you have two things: if it goes above that, you have to pour it down; if it goes multiple times close to that. That hasn’t been changed since 1972. That number would be 80,000 today, so what we thought was material then–
BRENNAN: –in terms of, like, suspicious transactions.
MOYNIHAN: Yeah, and so-and-so. There’s a lot of overwork here that we’re trying to – if they get those regulations right, that will be very helpful. So there’s sort of the ESG side of it; those things I think a lot of us fixed to make sure they’re based on risk and real facts and stuff. Because this was going on far before the new administration came in, frankly, in states and other places. There is the question of getting the AML and KYC letter and then the reputation risk, which, to the credit of the current federal bankers, they’ve taken that off the table.
BRENNAN: because there really aren’t that many points of agreement these days between Wall Street and the White House. But the president himself really dug into this issue, and he said that Bank of America declined to open new accounts for him and his family after his first term in office. Do you think you’ve patched things up? I mean, it’s – do you know what he’s talking about?
MOYNIHAN: We—I wouldn’t talk about client relationships with anybody, but we–
BRENNAN: He said it on television, about you.
MOYNIHAN: I know that. People – if I had a nickel for everything everybody said about me on television, it – you know, I’d be rich. So at the end of the day, we bank everybody. We have 125,000 religious organisations. We have 70 million consumers. We have tens of thousands – we have the biggest small business lender in the country, period, and stop. You know? And so, you know, the idea that we toss people out – it’s just not true. So I won’t get into an individual customer and their points of view. But look, some of these policies, we were pushed to places that we’ve been able to bring back to the centre, and America ought to feel good about that.
BRENNAN: And you think things are copacetic now. Have you resolved this issue with the White House?
MOYNIHAN: Yes.
BRENNAN: Okay, I’m getting a wrap over here on time. So thank you for making time for us.
MOYNIHAN: Happy Holidays, and thank you.
BRENNAN: Happy Holidays to you.
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