Too Much Stimulus Is Key Cause for a Coming Recession, Says Bank of America CEO

Brian Moynihan, CEO of Bank of America addresses the CEOs of global companies awarded the Terra Carta Seal. in Glasgow, Scotland on Nov. 3, 2021. Ian Forsyth/Getty Images

Excessive stimulus spending by governments during the pandemic is a key cause for a coming recession next year, according to a major bank CEO.

Too much stimulus money was printed during this time that the United States needs to “adjust to that decision, and that’s why you’re seeing the Fed tighten quick,” Bank of America’s CEO Brian Moynihan told “CNN This Morning” on Nov. 29.

The BofA CEO blamed uncertainty in the markets due to the potential U.S. freight rail strike, the war in Ukraine, and pandemic-related shutdowns in China for the increased chance of a global downturn.

Moynihan predicted that there would only be a “mild” recession in 2023, but that the American housing market will face almost two years of suffering before it sees a recovery.

Unlike some of his less bullish peers, Moynihan’s prediction is less pessimistic compared to the massive downturn predicted by JP Morgan Chase CEO Jamie Dimon.

Dimon told a conference back in June that Americans should brace for an economic “hurricane,” while Goldman Sachs CEO David Solomon said in July there was a “good chance” that the United States was far from hitting peak inflation.

Mortgage Rates Lead List of Economic Concerns

Regarding the weak U.S. housing market, Moynihan said that “as we see inflation slow down, and you’re seeing the rate of growth of inflation slow down. There’s still inflation, you’ll see rates come back down … and you’ll see the adjustments come through. And that’ll happen, that’ll take almost two years—two years of slower activity.”

However, surging mortgage rates this year, caused by the Federal Reserve’s aggressive interest rate hike policy, have made it very difficult for many younger buyers to purchase their first home, which could lead to tougher times for the housing market.

“This is the toughest thing. You have to slow down the economy. You have to slow down inflation. And the way you do that is raising interest rates,” he said.

“The intended outcome of [the Fed’s] policies doesn’t feel good when you are trying to buy a home.”

He also said that continuously strong retail performance may reduce the likelihood for a worst case economic slowdown.

“That was predicted to happen earlier this year: there was going to be a real slowdown,” Moynihan said dismissively, adding that “the Fed was going to raise rates and it’s all pushed out largely because of the U.S. consumer.”

Biden Defends Stimulus Package From Accusations of Worsening Inflation

Critics of the Biden administration blame excessive COVID-19 stimulus spending for being a key factor behind the highest inflation rate in 40 years.

President Joe Biden doubled down by praising his massive multi-trillion dollar package, which he claims saved the economy from disaster, despite causing prices to spike from inflation.

“We passed the American Rescue Plan,” Biden said at a computer chip factory in Bay City, Michigan, on Nov. 29.

President Joe Biden speaks about the American Rescue Plan and the Paycheck Protection Program (PPP) for small businesses in response to coronavirus in the Eisenhower Executive Office Building in Washington, D.C., on Feb. 22, 2021. Saul Loeb/AFP via Getty Images

The president said that Americans would soon start to see the positive effects of his pandemic era spending plan.

“Now, everybody knows it, but we did so much. No one knows the effects of it yet. It’s just coming into play.”

Biden claimed that the $1.9 trillion spent on the stimulus package accomplished things like helping local governments stay afloat and that the funding spent on items like government subsidies for health care, manufacturing, and “green energy” helped lead to economic growth.

America Will Take Lead on Global Economic Recovery

Meanwhile, when asked by CNN, if there was too much stimulus pumped into the system, Moynihan responded, “Yeah, but that was the last administration, this administration. But nobody knew at the time.”

“And I think that’s where people can look through the rearview mirror and always have a great point of view. The sportswriters can.”

“But the players on the field had to make a decision, was it right or not? And they did. Now, we have to adjust to that decision. And that’s why you’re seeing the Fed tighten quick,” Moynihan said.

Moynihan said towards the end of the interview that the U.S. economy is facing an unprecedented situation, but he remains optimistic that America will lead a global recovery despite a bad housing market.

With communist China facing severe unrest due to strict lockdowns and protests, the United States will not face much competition from its main strategic rival, he claimed.

“I think our economy is holding on better than the rest of the world right now. Now, the reality is, did we give more stimulus than you could theoretically calculate? But nobody knew at the time,” repeated Moynihan.