Monetary Policy in the Era of Trump: Fed Needs to Watch the President
The Federal Reserve must now monitor Donald Trump's actions to determine the appropriate level of monetary stimulus, says Bank of America CEO Brian Moynihan.
"The Fed must respond to the new administration's fiscal policies," Moynihan told Yahoo Finance at the World Economic Forum in Davos, Switzerland. "We have a private sector-led economy that the government supports, and the central bank responds to."
The Fed has historically emphasized its independence from the White House, but markets have been unnerved by the Fed's lack of commitment to aggressive rate cuts despite a strong U.S. economy. Fed officials now expect only two rate cuts this year, down from four forecast in September.
The Fed remains concerned about inflation, with San Francisco Fed President Mary Daly expressing hesitation over further rate cuts. Additionally, potential Trump administration actions such as China tariffs and rising oil prices are clouding the inflation outlook.
Despite the Fed uncertainty, Bank of America's stock has surged by 11.5% since Trump's election, while the S&P 500 has gained 4.7%. Analysts attribute this to expectations of reduced bank regulations under Trump.
Moynihan specifically hopes for more rational capital requirements, as well as adjustments to liquidity and consumer activity regulations.
The banking sector has performed well in the fourth quarter, driven by strong sales in investment banking and trading. Bank of America saw a 15% revenue increase and a 111% increase in net earnings, with 44% growth in investment banking fees and an 18% increase in global market sales.