We expect this economic growth will slow, but that will be driven by the Fed normalizing monetary policy.
Before the pandemic, we had a strong economy and interest rates were two percentage points higher. That’s why the Fed has to do what they've said they are going to do, which is it’s time to normalize interest rates. The question is, is that going to create inflation and supply chain and labor shortages. Two-thirds of the economy is driven by consumer spending.
Q: Why is this strong consumer spending a good thing and what should the Fed do about it?Ī: The good news is, they’re still spending even though the stimulus has largely run its course. That to me says consumers are not taking on debt to keep this spending up. We’re still 15% behind where we were pre-pandemic and if you look at the payment rates on those credit card balances, they are still running at a very high rate. On the other hand, they’re not doing it through leverage. That means those higher wages have been a net positive even with their spending rising. Q: Is the higher spending due to consumers leveraging up, by putting money on credit cards or borrowing to keep up with expenses?Ī: Consumer account balances are still building. Nobody spends three times the rate they were because of inflation. Also in our data, the number of transactions is up almost 10%. Certainly, consumers are still struggling due to inflation. Q: Could inflation be behind the higher consumer spending?Ī: Consumers have a lot more money in their accounts than before the pandemic, helped by the stimulus. Now some of this payment growth could be us getting market share on our competitors, but 17% growth shows there's some sort of behavior change going on, even with a strong growing economy. We’re seeing the overall spending of our clients on credit, suspending credit, debit cards, cash pulled from the ATMs, etc. Q: Why do you feel these higher spending numbers in January are important?Ī: So the narrative we've been hearing is that consumer spending was up substantially in the fourth quarter and it appears like that trend is going to continue. The interview has been edited for clarity and length.
Moynihan spoke with The Associated Press about the data, as well as his thoughts on inflation and the Federal Reserve.
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