Good morning. CFOs have navigated economic uncertainty, inflation, and high interest rates over the past few years. But the Federal Reserve announced last week a 50 basis point cut to its benchmark interest rate, which is the first rate cut in four years. And big bank CFOs are optimistic about this move.
“The Fed appears to be winning the inflation battle,” Bank of America CFO Alastair Borthwick said during the BofA Securities Financials CEO Conference on Wednesday.
Inflation is now anywhere between 2% and 3%, so there’s a low growth, low inflation environment, Borthwick said. There’s potential for an “upward sloping yield curve” in the future, which tends to be a good environment for the U.S. and for banks, he said. “We're encouraged by all of that," he said.
The Federal Open Market Committee projected lowering rates another half point by the end of the year, expecting rates to eventually fall to 2.9% through 2026.
BofA economists predict a half-point cut in November. After that, they see a series of quarter-point cuts until the fed funds rate hits 2.75%-3% sometime in 2025, down from 4.75%-5% today, Fortune reported.
“We've had 15 years of rates being close to zero, that's historically quite abnormal,” Borthwick said at the conference. So where we are today at about 5% down to 2.75% to 3%, tends to be a good environment for banks, he added.
During the conference, Borthwick also said that it looks like the U.S. consumer is “still in a good place.” Deposit balances for our BofA customers have “come down a little bit,” he said. But at the very low end of the consumer, they're still 2.5 times to three times higher than where they were pre-pandemic, he added. And on the commercial side, commercial asset quality remains pretty good, he said. “We can see corporate America profitable, cash flowing, and good balances there as well,” Borthwick said.
On Tuesday, another CFO—this time Denis Coleman of Goldman Sachs—weighed in on the Fed’s rate cut. Coleman told CNBC: “I think this first 50 basis point cut is a clear signal in terms of the new direction. And hopefully, that'll unlock incremental amounts of confidence, and should obviously reduce the cost of capital, and perhaps some more strategic activity heading into the end of this year.”
Does he think the Fed maneuvered a soft landing? Inflation levels are coming down and unemployment is manageable, Coleman said in the interview. “They're starting to put through rate cuts to maintain a soft landing trajectory; it’s certainly the consensus and my hope and expectation,” he said.
Central bankers will meet again Nov. 6-7 and CFOs will seemingly be hopeful for another rate cut.
Sheryl Estrada
sheryl.estrada@fortune.com
