Bank of America's Brian Moynihan warns against 'wealth effect' that could feel like 2007-08

Discussing his outlook on Federal Reserve trajectory, economic recovery and America’s energy independence, Bank of America Chairman and CEO Brian Moynihan predicted a mild recession coming this year on "Mornings with Maria" on Thursday.

"We basically have a mild recession predicted starting sort of mid this year into '24. We expect that the Fed will move rates up over 5% and hold them there all through, pretty much next year," Moynihan told host Maria Bartiromo from Davos, Switzerland. "Unemployment will move up a little bit, and so that's how they have to slow down the economy."

Moynihan argued that "it’ll take a few years" to get the Fed’s rate structure "back to normal," thus pushing back on any idea that it will cut back on rate hikes in 2023.

"Our spending and the activity is more consistent with a lower growth economy and a more normal economy. Inflation is not over yet," Moynihan said, "because the Fed raised rates a lot to slow down the economy."

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The policy-setting Federal Open Market Committee next meets Jan. 31-Feb. 1. Markets widely expect the Fed to approve a 25 basis point rate increase that would lift the benchmark federal funds rate to a range of 4.5% to 4.75%, deeper into restrictive territory.

Policymakers are in the midst of the most aggressive campaign since the 1980s to crush inflation, although there is early evidence that price pressures are beginning to moderate.

Bank of America’s chairman and CEO claimed its customers are "meeting income multiples" compared to pre-pandemic levels as stimulus is "still being spent."

"That means that the U.S. consumer still has a lot of purchase power," Moynihan said. "Although the fight about inflation is, things get expensive, it hits them right in the pocketbook and then they start to change their behavior."

The business leader also touched on housing demand destruction and what recovery looks like in the real estate sector. Agreeing that home prices were previously impacted by the Fed’s raised rates, Moynihan said mortgages will slowly start returning to a "long-term trend" near 3%.

"The population in the U.S. is fairly stable in whether houses are needed in certain places. At the end of day, there's not that much aggregate demand and so rates slow it down," the CEO said. "But that's the intended outcome of the Fed changing rates. If we didn't slow down housing, people would have this wealth effect, it would probably feel more like 2007-08."

With Goldman Sachs planning to lay off as many as 4,000 jobs this month partly due to tightening monetary conditions, Moynihan indicated job cuts won’t be coming to Bank of America.

"We keep the critical staffing, we keep the people we need and we just really watch it. But look, we can manage that with a 10% turnover rate and 215,000 people," Moynihan explained. "We have to hire 5,000 people to keep the number of headcount stable. So what you do is just slow down the hiring and let the headcount drift to where you want to be."

The BofA chairman and CEO also called for balanced energy policy, noting that the bank has $40 millon worth of loans out to oil and gas companies and had recently collaborated with Sen. Kevin Cramer, R-N.D., on a net-zero commitment.

"We need to have both. We need lots of oil and gas, energy security, and we need to start to make the transition," he said. "The key is to keep it all in balance."

Moynihan further spoke out against too much bureaucracy being involved in the energy industry, pointing at new European standards which will soon apply to American companies and their overseas projects.

"We have 200 companies that are already disclosed on them, but don't take us in all these different directions, because then we can actually drive the private markets," Moynihan said. "Capitalism will solve these problems if you let it go. If you try to micromanage it, if you try to take it away, it's done."

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He further urged that the U.S. has a "great opportunity" to capitalize on its liquefied natural gas supply and ensure we don’t make the "mistake" of relying on a singular energy source.

"About 18% of all the clean energy in the United States runs for us. It's Texas, it's Oklahoma, the wind, solar, that's where we do the stuff. It's a wonderful thing," Moynihan said. "And with Kevin and others, had him talk to a group of CEOs about this, there's a balanced view here. We can drive it. Even Senator [Joe] Manchin [of West Virginia], I heard the clip there, we need oil, and we need to drive everybody there… We believe that oil companies have to be at the table or else it won't happen."

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FOX Business’ Megan Henney contributed to this report.