Bank heavyweight on market volatility: Geopolitical events, supply chain creating 'additional uncertainty'

Bank of America CEO Brian Moynihan argued on Wednesday that geopolitical events and supply chain issues are creating "additional uncertainty" as market volatility rages on, but notes that overall the U.S. economy is strong based on consumer spending, low unemployment and wage growth.

Moynihan provided the insight on "Cavuto: Coast to Coast" on Tuesday, stressing the importance of getting inflation under control. 

The consumer price index rose 7.5% in January from a year ago, according to a new Labor Department report released earlier this month, marking the fastest increase since February 1982, when inflation hit 7.6%. The CPI – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – jumped 0.6% in the one-month period from December.

The Federal Reserve late last month signaled it could "soon" raise interest rates for the first time in three years, paving the way for a March liftoff as policymakers seek to keep prices under control and combat the hottest inflation in nearly four decades. 

Moynihan stressed that, overall, "we feel good about the U.S. economy" based on "what we see on the consumer base and spending," as well as with the bank’s corporate customers, borrowing, and credit availability. 

"Everything is very strong," he continued. "The capitalization of banks [and] liquidity of banks."

Moynihan argued that the banking sector "is in great shape to support the real economy" and that we will see it grow.

"Unemployment is low, wages are growing," he added. "Things like that are good. It’s just that we have to get inflation under control at the same time."

Ticker	Security	Last	Change	Change %
I:DJI	DOW JONES AVERAGES	44296.51	+426.16	+0.97%
SP500	S&P 500	5969.34	+20.63	+0.35%
I:COMP	NASDAQ COMPOSITE INDEX	19003.651134	+31.23	+0.16%

Moynihan made the comments as U.S. stocks gave up early gains on Wednesday as investors are monitoring the situation between Russia and Ukraine and amid reports Ukraine was the target of a massive cyber attack. 

The S&P 500 fell .3%, after falling into correction territory Tuesday, down over 10% from its most recent peak. The Nasdaq Composite dipped 0.5% and the Dow Jones Industrial fell over 90 points or 0.3%. 

JUSTICE DEPARTMENT PROBING SUPPLY-CHAIN DISRUPTIONS

Earlier, Ukrainian citizens were ordered to leave Russia following U.S. and U.K. sanctions imposed on Russia Tuesday. 

Moynihan told host Neil Cavuto on Wednesday that he believes the Fed will "try to normalize more quickly than before, absent some extraneous, outside controlled events" given soaring inflation and the fact that the "unemployment rate is full employment plus."

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Ticker	Security	Last	Change	Change %
BAC	BANK OF AMERICA CORP.	46.99	+0.55	+1.17%

The Fed has a dual mandate of full employment and price stability. Currently, inflation is well above the Fed’s target of 2%. 

Most Federal Reserve officials agreed last month that surging inflation and an incredibly tight labor market could warrant a faster-than-expected pace of interest rate hikes this year as policymakers look to combat soaring prices.

Minutes from the U.S. central bank's Jan. 25-26 meeting show that many policymakers believe the current economic conditions could necessitate a quicker normalization of policy than in 2015, though they stressed that this outlook ultimately hinged on financial developments. The Fed kept rates ultra-low for years following the 2008 financial crisis, only raising them once at the end of 2015. Officials subsequently raised rates eight more times over a three-year period. 

Although central bank officials have left rates unchanged since March 2020, they indicated broad support during their two-day January meeting to begin raising rates amid growing concern over the rapid increase in consumer prices. A rate increase would mark the first since December 2018. 

Although policymakers did not provide an exact timeline for the interest rate liftoff, they hinted it could take place during their meeting on March 15-16. 

Late last month Bank of America economists noted that they expect the Federal Reserve to hike interest rates at every meeting for the remainder of the year as central bank policymakers look to tackle inflation.

In an analyst note to clients, the Bank of America economists – led by Ethan Harris – projected seven, quarter percentage point rate increases in 2022, putting the target range between 2.75% and 3% at year's end. 

Moynihan argued that the Fed has "got to move faster to normalize because the rate of recovery was much faster due to the strong fiscal stimulus and monetary stimulus."

"So the idea that the Fed would move faster than people thought doesn’t surprise me at all, and I think they know they need to," he continued, noting that COVID-19 could put a dent in those plans given "the pandemic path is always unpredictable." 

He also noted that geopolitical events would impact the Fed’s moves considering those events could also be unpredictable, stressing that "inflation is not temporary and "has to be dealt with." 

"And I think moving rates up will deal with it and I think you will see them [the Fed] move relatively quickly," he continued. 

Moynihan also argued that the Fed has "been clear that they’re moving" to raise rates, noting that "the market gets ahead of them," pointing to the recent surge in treasury yields.

"Markets always discounts the future and moves up," Moynihan said. 

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"Frankly the benefits of a higher rate structure is already coming through the market even before they [the Fed] actually take action," he continued. "They know what they need to do. They have tools to fight inflation. They have to apply and they have to be careful not to over-apply because that causes a recession on the other side."

He then warned that "we’re going to live through a period of turbulence as we sort through this."

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FOX Business’ Megan Henney contributed to this report.