Author: Kelly hills
According to experts, the Fed’s interest rate hike has caused many Americans to rein in their spending habits. The Federal Reserve’s interest rate hike echoes across the economy, affecting businesses such as Wells Fargo and Bank of America (BofA).
After two years of double-digit growth in credit card volume, BofA CEO Brian Moynihan stated at a conference that the bank’s growth rate is slowing. He also said that retail payments increased by 11% this year, reaching approximately $4 trillion before a slowdown began in recent weeks.
Wells Fargo CEO Charlie Scharf tells a similar story, citing a decrease in credit card payments and decreased debit card transaction volumes.
Bank Leaders Claim Fed’s Interest Rate Hike is Affecting Consumer Behaviour
The CEOs of Bank of America and Wells Fargo, as well as other bank leaders, claim that the Fed’s initiative to reduce inflation by raising borrowing costs is affecting consumer behavior. Even though the American consumer has always aided the economy through low unemployment, stimulus payments, and wage increases, this may soon change.
And these changes will have an impact on the majority of businesses as they prepare for the fiscal year 2023. Furthermore, Scharf stated that Wells Fargo’s growth rate has slowed and predicts the economy will be weak throughout 2023. The CEO of Bank of America also indicated that he anticipates negative growth in the first three quarters of 2023, followed by a slight increase in the fourth quarter.
Who Does the Downturn Affect?
According to Wells Fargo’s CEO, the downturn affects retail consumers and businesses. However, he claims that the lower-end consumer is under more pressure than the upper-end. According to Scharf, businesses based on entertainment or experience appear to be doing better than those based on durable goods.
BofA CEO Moynihan expressed similar sentiments, citing strong consumer travel spending. He also stated that there had been a shift in consumer spending from goods to travel, entertainment, and restaurants.
While a slowdown in consumer spending is the Fed’s desired outcome for lowering inflation, the central bank may struggle to achieve it. They will have to raise interest rates sufficiently to slow the economy while avoiding a severe downturn.
Experts predict that the Fed’s benchmark rate will reach 5% or higher next year. According to Moynihan, the effects of the slowdown are beginning to be felt, but the real question is whether the Fed will be able to stabilize in time to avoid further damage.
The Bottom Line
According to the CEOs of Bank of America and Wells Fargo, both banks are experiencing a slowdown. This downturn results from the Fed raising interest rates, forcing consumers to cut back on their spending. The Fed’s method of combating inflation is to raise borrowing costs, and according to BofA CEO Moynihan, the strategy is in full effect. Bank leaders also add that the downturn affects retail consumers and businesses.
