Just talking about Congress preparing to act to avert this rail shutdown. President Biden warning if that happened, it would devastate the economy if we had a strike like that. So joining me now to talk about this and a lot more is the bank of America.
It's Brian Moynihan, Chairman, and CEO, of one of the biggest banks in the world. You know where the economy is headed to all that, we appreciate you coming into CNN this morning. First of all, congratulations on the new show to you and your colleagues.
Thank you. So, look, things like the rail strike or the war in Ukraine and what happens in China with shutdowns, those are all sorts of things that can derail the economy. And everybody knows that and we've been dealing with them for quite a period of time.
But if you look at the core economy, our team has a mild recession predicted in the middle of 2023 and then coming back out of it later in 2023. Now, that was predicted to happen this year. Earlier this year, there was going to be a real slowdown.
The federal is going to raise rates and it's all pushed out largely because of one thing, which is the US. The consumer who is spending money. And we just got our spending from Thanksgiving to last Saturday, and it was up 3% over last year, which was up 23% from the year before, 20% of where it was in 19.
You see booking, travel and things like that. You see the consumers employed, you see them spending money, and you see them having money in accounts. That means inflation has to be tackled by the Fed. But the consumer is both a buffer against that and also makes it difficult.
What I think is interesting about you, Brian, is you've been like the optimist in all of this. So you just said, yes, a mild recession next year, but we'll get through it by the following year. Jamie diamond warned the summer head of JP Morgan that an economic hurricane.
His words are coming, we just don't know how strong. A hurricane? Do you see an economic hurricane? Well, the hurricane season is now closed. So having a house in the Carolinas, I'm used to dealing with that.
But at the end of the day, the belief was if any of those horribles came together, you could have a different outcome than the Fed tightening. And the Fed is tightening in an unprecedented. Way because we have unprecedented inflation, 40, 50-year-long inflation.
So what does that affect? First, housing. That's changed dramatically, but rent increases are only coming through now. So at the end of the day, the consumer is held in well, and at the end of the day, the consumer stays reasonably strong because they're employed.
I'm hearing no economic hurricane from Brian Moynihan, am I right? My older session was milder. Okay, so let's kick through all those things. Housing matters to everyone. It is much more expensive to buy a house now because of mortgage rates.
And your research at Bank of America shows how much rents have increased. So people feel like they're out of hope. When is it going to get better housing for Americans? Well, so this is the toughest thing because you have to slow down the economy, you have to slow down inflation.
And the way you do that is by raising interest rates if it wants us to buy fewer homes, that's exactly right. And so what is the intended outcome of their policies? Doesn't feel good when you're trying to buy a home.
If you're a young family trying to buy your first home, whatever. So that'll straighten out. Now you have to sort the housing, the two pieces. One is the people who have mortgages that are outstandingly locked in below 5-4-3 90% below 580 percent, below 450 percent, below three, they're locked in for 30 years.
But when you go to buy a house, you're feeling that effect, and that slowed down dramatically. And that's why the homebuilders and others but that's the intended outcome. What will happen is as we see inflation slow down and you're seeing the rate of growth, inflation slowdown still inflation, you'll see rates come back down to more the target rate, and you'll see the adjustments come through and that will happen.
That will take almost two years, two. Years of pain for people trying to. Rent or buy a house, two years of solar activity. Now the rental side of that is the key, and that's rents have increased. And you're seeing rents have increased and already starting to decrease in some cities around the country.
But that's where you have to be more concerned because half the people in America pay rent, they don't own their homes. And that is where it's affected. That's still ahead of it. And millions of them have a lot of outstanding credit card debt.
And can you just help us understand why credit card interest rates are at a record high? Now, I understand the Fed raising rates, but the Fed funds target rate compared to. Apr seems extreme. And I know there's no collateral to back credit cards, but like, do they need to be that high?
Well, the reality is a third of our credit cards pay off every month. They don't even pay interest. Right. So we give you the money 30 days later, and 45 days later, you pay us. Two-thirds of Americans don't.
And then the ones that do, the rates structure is far lower than the stated rate structure just because of all the different things that have gone on. So, look, those rates adjust with the market, they'll come back down with the market.
They were low for a long time. But the reality is that the good news for America is that delinquencies on credit cards are low. They are much lower than they were at 19, which is a very good credit time for the banking system.
So our job is to help our customers continue to prosper and live. And the key thing is, remember, unemployment is 3.6 mid-three, the worst projections to get the fives where it was, you know, in the 1718 range.
You met with President Biden, I think it was in July at the White House. I wonder how presidents get a lot of credit when the economy does well and all the blame when it does poorly. How do you think he's handling this economy?
Well in that today he's dealing with very unprecedented times. So the job of the American people is to decide that. And they just had an election. What does Ryan warn? I think our economy is holding up better than the rest of the world right now.
Okay. Now, the reality is that we give more stimulus than you could theoretically calculate, but nobody knew at the time. Too much stimulus, lesson learned. Yeah, but that was to adopt administration and administration, but nobody knew at the time.
I think that's where people can look through the rearview mirror and always have a great point of view. The sports writers can, but the players on the field have to make a decision, was it right or not?
And they did. Now we have to adjust to that decision. That's where you're seeing the Fed tight and quick. I want to talk about what's going on with workers. You employ so many people at the bank of America.
You also have led on wages, increasing wages now to $22 an hour at the bottom. You're going to be $25 an hour by 2025. But real wages are down for folks because of inflation and something's going on with workers.
I was home in Minnesota this weekend. Coffee shops were closed. They couldn't find workers. Restaurants can't find enough workers. We're seeing unionization at companies that never saw it before. Starbucks, Amazon, and news outlets like BuzzFeed.
What is happening with the American worker? The labor markets got very tight, so the dynamics shifted with the kind of employment levels we had. Unemployment claims still are bumping along at very low levels, levels that haven't been seen since.
The numbers of workers are, like, 25% lower. The blame market is very tight. And so the negotiation power moves around. Right? I mean, that's what happens. Equip rates got way high. What you're seeing now is mitigation, which is good from the Fed's perspective in terms of the economy, but you're seeing that mitigate now.
What do we think about that? Our job is to provide the ability for an 18-year-old to join our company and be here their entire career and get themselves educated and trained with us. And you do that all day.
I just celebrated a 50, 55, 60, 65, and 75-year employee the other day. So think of 75. Do some math and think that the person started at 18 and went to college. That's what great employers do. And so our turnover rate moved up as everybody else has already moved back down.
My guess is by early next year, we're back in line, where it was 19, which is good, but that takes employers saying, how do I holistically help a person develop a career? You guys gave money, a lot of it, to employees to pay for childcare during the pandemic when you ask them to come back.
I want to talk about China. You do a fair amount of business in China. How worried are you about what we're seeing on the streets of China and Xi Jinping's tight grasp on power and zero COVID policy? I think the thing we have to think about China is they're still dealing with COVID the way we were dealing with it in 2020, in the spring, which is your choice to shut down.
And that is very disruptive to the supply chain and the internal economy. We've dropped our projections for the company down to 3%. GDP growth economy, generally always grew five to 6%. So it's affecting their economy, it's affecting the worldwide economy, the shortages.
Don talked about the railroads and not having shortages. We don't have the goods, we can't ship them. And that supply chain is still not evened out. And that is somewhat good news. And that stuff still is bought and has to get through the system.
But it's bad news because it will slow people's perching down. After all, they don't think they can get something. And that's kind of the issue in China. So leave aside the healthcare struggle and the human struggle, which is horrible, but the reality is, from an economic perspective, they're shutting down, which is causing the world disruption.
And they don't have a choice, it seems because they don't have the structure that we have in the United States with vaccines and people through the system. So you're concerned about what we're always concerned about.
Okay. Twitter bank of America is one of the big banks that financed Elon Musk's takeover of Twitter. Elon Musk himself tweeted a few weeks ago, Twitter could go bankrupt. You're hanging on to a lot of that debt.
The Financial Times is reporting you guys and big banks are waiting for a business plan from us. Here's what it's going to look like to unload that debt. Have you gotten the business plan? What do you make of how he's leading?
Well, that's not something that we talk about with clients or customers. And by the way, I'm the worst person to be in the middle of a credit decision because that's not what I do in the company. But if you look at it just on leverage finance, which people talk about in the day, we market the market every Friday.
So it's all through the PNL and whatever impacts and looks, he'll run the company the way he does. He owns it. They have tremendous equity in it. And so we'll see what happens. Hoping for the best. We don't hope.
We plan for the best. Okay. I do want to ask you about crypto. You have been very cautious, always on cryptocurrency. Look what has happened. Look at FTX collapsing. Look at this week's BlockFi, which is a crypto lender that I think it's important people know lends to.
It was for average folks. This was for the Main Street Average show collapsing. What went wrong? What went wrong is I think it was. Perspective assets got very high and then came crashing down. And the leverage embedded in all that happened.
But that was relatively predictable. And many of us said, be cautious here. The good news is, if you think about the history of it, the rate of movement out of our accounts into crypto slowed way down, which means investors why don't you be cautious?
East, then? You guys are so highly regulated. I mean, watch any of those testimonies before Congress. And where are the regulators on this? Is it safe for anyone to have a crypto market that exists anymore without regulation?
Well, you would have to back up two things. Blockchain technology. Very good. We have hundreds of patents on it. The idea of a currency and stuff, it's not needed. We can transact in ways that are wonderfully fast.
The real-time payment system that is connecting around the world. The Fed is building one. We've already built one in the industry. The ability to send money anywhere in the banking system. These things are important.
So are there areas where the industry has to lead and where other entrepreneurs saw an opportunity? Yes. The small balance across border payment. And we're working.