The banking boss—whose work has been lauded by the likes of Warren Buffett—said his team’s hypothesis is that the Jerome Powell-led Fed will lower rates four times in 2024. That’s one higher than initial indications provided by the Fed’s dot plot (a chart updated quarterly projecting the interest rate’s short-term moves) but two lower than the Wall Street consensus of six cuts.

And while many on the street might be banking on this scenario, Moynihan isn’t hanging his hat on it. In fact, it would actually be good news for his institution if the Fed didn’t cut rates as early as predicted.

If the Fed doesn’t cut rates soon “from our company’s perspective, that actually helps a little bit,” Moynihan told CNBC Friday. He explained this is “because [of] the vast amount of short floating rate instruments we have on the asset side and the cash, the $500 billion—almost $600 billion of cash—we put with the Fed overnight in very short Treasuries.”

Moreover, Moynihan laid out that a delay to cuts could benefit the consumer. Concerns about inflationary pressures are still chiming: geopolitical tensions such as the Russian invasion of Ukraine and the Israel-Hamas war are pushing up oil prices, with shipping reroutes around the Red Sea further adding to wider inflationary pressures.

In addition, the CPI (consumer price index) figures released last week for December were slightly more stubborn than hoped for. Seasonally adjusted, prices on the index rose 0.3% in December following 0.1% in November. Overall that brought the benchmark to 3.4% over the past 12 months, still well ahead of the Fed’s 2% target.

But despite these figures Moynihan notes that when the consumer began to show real signs of distress—or the “point of pain” as Bank of America has previously put it—the Fed listened. Moynihan said that when the market “moved heavily” and there was a sense the Fed should stop hiking, they did.

Combining inflationary fears with this flexibility from the Fed could work well, Moynihan said: “If you mix that all together, in the end of day, rates not coming down actually help us.”

Back to reality

On top of that, the longer-term work of the Fed wasn’t to merely get inflation under control but was also to reintroduce consumers to a normal level of rates, Moynihan said.

Consumers have enjoyed a period of exceedingly low rates since the 2008 financial crisis—the base rate only crept above 2% for a short period of time in 2019 before being axed again to stimulate the economy during the pandemic. From 1971 to 2023 the average base rate is 5.4%, according to Trading Economics, meaning the current base rate of 5.25 to 5.5% is actually fairly average.

“The reality is that everything’s setting up for them [the Fed] to be able to normalize the rate environment,” Moynihan explained. “Given that you’re seeing consumer spending, which, for the first part of ’22 to ‘23, was up double digits, it’s now down to 4 or 5% growth in the first part of ’24.”

He added: “That is more consistent with a lower-growth, low-inflation economy. If you think about the customer… if they’re slowing down their purchases, that’s not inflationary.”

If the balance tips too far, Moynihan said, the Fed will be forced into action: “The consensus view [is] basically planning for a soft landing, which is still a major step down in growth from the third quarter of ’23 to the first quarter of ’24. You’re going to see growth from 4%-plus to about 1%.

“That’s a major downdraft in growth and so the Fed at some point has to be careful it doesn’t go below that.”

Not everyone is so convinced by the soft landing prediction. JPMorgan CEO Jamie Dimon admits he is among the more cautious on Wall Street, telling Fox Business last week: “The government has a huge deficit, which will affect the markets. I’m a little skeptical on this Goldilocks scenario. I still think the chances of it not being a soft landing are higher than other people.”

‘Goldilocks’ growth refers to a period where data is not too hot to prompt the Fed to tighten rates but not cool enough to be an indication of struggling corporate profits.

Dimon said a harder recession may be on the cards, but added the U.S. economy could withstand that: “All of us in business have to learn to deal with the ups and downs of the economy. But I do think the crosscurrents are pretty high: the money running out, rates are high, QT [quantitative tightening] hasn’t happened yet.”

For Moynihan at least, the outlook is rosier. He concluded: “These external factors could hasten [the Fed] to do more faster cuts or cause them to hold on a little bit longer to make sure the inflation doesn’t kick back in.”