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American consumers are in open revolt against corporate inflation, forcing companies to cut prices if they still want their business.<\/p>\n
Speaking on\u00a0Face the Nation\u00a0<\/em>on Sunday, Bank of America<\/a> CEO Brian Moynihan warned that households continue to travel on vacation, go to the movies and dine out, but they are no longer willing to splurge now that their nest egg is shrinking. The post-pandemic\u00a0revenge spending<\/a>\u00a0that turbocharged U.S. growth over the past two years has given way to a nation of coupon clippers.<\/p>\n \u201cThey\u2019re basically finding bargains,\u201d the CEO of the world\u2019s second largest lender by market cap said in the\u00a0interview<\/a>. \u201cAnd you\u2019re seeing corporations cut price to respond to that.\u201d<\/p>\n This suggests executives went too far hiking prices to pad their bottom line, a phenomenon known as \u201cgreedflation<\/a>\u201d. One recent study analyzing U.S. Commerce Department data found that\u00a0corporate profits drove 53% of inflation<\/a> during the second and third quarters of last year.<\/p>\n According to Moynihan, Bank of America\u2019s 60 million retail customers are spending 3% more than they did this time last year, but that rate of growth represents half of what it once was following the pandemic.<\/p>\n Instead he said this figure is much more consistent with the pace seen during the Trump administration years prior to the outbreak of COVID. Despite the greedflation problem, many households have preserved purchasing power by shifting spare cash to interest bearing accounts that yield 5% in some cases.\u00a0<\/p>\n \u201cThey\u2019re still sitting with much more\u2014even inflation-adjusted much more\u2014in their account,\u201d the Bank of America CEO said. \u201cThe problem is it started drifting down, which indicates that they\u2019re using that money now to maintain a lifestyle.\u201d<\/p>\n The bank could not be immediately reached by Fortune<\/em> for further comment.<\/p>\n With frustrated consumers\u00a0sharing<\/a>\u00a0photos of their shopping bills online, brick-and-mortar retailers have been forced to react with promotions to maintain foot traffic.\u00a0<\/p>\n Another joyful family trip to Costco!<\/p>\n This (plus the pack of paper towels in the bed) was only $655!<\/p>\n The average American family is doing just fine! pic.twitter.com\/cuCEvoix3a<\/a><\/p>\n \u2014 Ethan (@EZebroni) August 9, 2024<\/a><\/p><\/blockquote>\n Going into this season, for example, Walgreens launched a \u201cSummer of Savings\u201d that included price cuts on 1,300 items.\u00a0<\/p>\n \u201cWalgreens understands our customers are under financial strain and struggle to purchase everyday essentials,\u201d it\u00a0explained<\/a>\u00a0at the end of May, justifying the move.\u00a0<\/p>\n But by\u00a0following other peers<\/a>, including Walmart<\/a> and Target<\/a> and\u00a0even discounter Aldi<\/a>, parent company Walgreens Boots Alliance<\/a> ended up having to slash their full year earnings forecast just\u00a0weeks later<\/a>.\u00a0<\/p>\n Management blamed this type of promotional activity for the downbeat outlook and predicted further headwinds would persist during its coming 2025 fiscal year. Its shares lost nearly a quarter of their value immediately following the profit warning, and are now trading at lows not seen since 1997.<\/p>\n Fast food restaurant chain McDonald\u2019s likewise complained that price hikes on key menu items failed to offset a drop in consumer visits, leading to a slight decline in same store sales in its\u00a0domestic U.S. market<\/a>.<\/p>\n In his interview with\u00a0Face the Nation<\/em>, Moynihan stipulated his bank\u2019s economists currently do not forecast a recession next year. Nonetheless he advised the Federal Reserve to begin easing off the brakes.\u00a0<\/p>\n The Bank of America CEO anticipates a series of eight cuts through the end of 2026, half of which he sees coming next year. This would bring the fed funds rates down 2 percentage points to 3%-3.5%, he said, a rate he called normal in the new higher-for-longer environment.\u00a0<\/p>\n Without an imminent signal from the Fed that relief is coming in the form of lower borrowing costs, he fears households could go into total hibernation.\u00a0<\/p>\n \u201cOnce the American consumer really starts going very negative,\u201d he said, \u201cthen it\u2019s hard to get them back.\u201d<\/p>\n<\/div>\nOnce households go into hibernation, it\u2019s hard to wake them up<\/h2>\n
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