Bank of America: A Bullish Bet on Consumer Resilience and Fed Rate Cuts

The Federal Reserve's reluctance to cut rates in 2025 has created a paradox: consumers are spending at elevated levels despite stubborn inflation, while businesses and policymakers grapple with the timing of monetary easing. Bank of America (BAC) CEO Brian Moynihan has emerged as a key voice in this debate, highlighting how sticky inflation and tariff pressures mask underlying consumer strength. For investors, this tension creates a compelling opportunity in BAC's stock, which could benefit from a Fed pivot as early as late 2025. Here's why.

The Fed's Dilemma: Inflation vs. Consumer Resilience

The Federal Reserve has maintained its federal funds rate at 4.25%-4.50% since January 2025, citing persistent inflation above its 2% target. Recent data shows core PCE inflation at 3.1%, while the unemployment rate remains near a 50-year low of 4.2%. This “Goldilocks” scenario—strong labor markets with manageable inflation—has left the Fed hesitant to cut rates prematurely. Yet, Moynihan's analysis reveals a critical nuance: consumer spending isn't just holding up—it's accelerating.

Bank of America's card data reveals a 6% year-over-year surge in consumer spending during the first 40 days of 2025, driven by services, entertainment, and discretionary purchases. This outpaces the 4.5% growth seen in late 2024, underscoring a shift in behavior: consumers are prioritizing experiences over goods, even as they express pessimism in surveys. Moynihan calls this a “classic disconnect,” where sentiment lags actual behavior. The Fed's data-dependent approach means this spending resilience is a key barrier to near-term rate cuts.

Why the Fed Will Cut Rates in 2025—and BAC Benefits

While the Fed's June 2025 Summary of Economic Projections hints at a gradual easing path (projecting a 3.9% funds rate by year-end), markets have yet to fully price in cuts. Moynihan's comments suggest two catalysts for a pivot:

1. Tariff-Induced Inflationary Volatility: Auto tariffs and geopolitical risks threaten to reignite inflation. Moynihan estimates auto tariffs alone could add 0.25% to annual inflation, pressuring the Fed to preemptively ease.
2. Consumer Credit Quality Holds Firm: BAC's prime borrowers maintain strong credit metrics, with delinquencies near historic lows. This stability, combined with locked-in low mortgage rates, suggests the Fed won't need to keep rates elevated indefinitely.

BAC's net interest income (NII) hit a record $14.7B in Q2 2025, benefiting from high rates. However, Moynihan argues that prolonged restrictions risk stifling growth. A Fed rate cut by late 2025 would alleviate this tension, boosting BAC's loan demand while maintaining its NII upside.

The Case for Buying BAC Now

Investors should view BAC as a leveraged play on a Fed pivot. Key arguments:

• Pent-Up Demand Post-Tariffs: If trade policies stabilize, consumer spending could rebound further, driving BAC's retail and commercial lending segments.
• Employment Anchors Spending: With unemployment near 4%, wage growth remains steady. Moynihan notes that 80% of BAC's borrowers are in stable sectors like healthcare and tech, reducing default risks.
• Valuation Advantage: BAC trades at a 12% discount to its five-year average price-to-book ratio, offering a margin of safety even if near-term cuts are delayed.

Risks and a Bear Case

• Inflation Stays Sticky: If core PCE remains above 3% through 2025, the Fed could delay cuts, compressing NII.
• Tariffs Escalate: A trade war could hurt small businesses, which account for 40% of BAC's commercial loans.

Investment Thesis

Bank of America's stock is positioned to thrive as the Fed navigates its rate-cut timeline. While 2025's path is uncertain, Moynihan's data and the Fed's gradual stance suggest a pivot by year-end is increasingly probable. With a robust balance sheet, improving credit quality, and exposure to post-tariff demand, BAC offers a compelling risk-reward trade. For investors, now is the time to consider a long position, with a target price of $35–$40 by late 2025—a 20% upside from current levels.

In conclusion, BAC's stock embodies the tension between today's inflation and tomorrow's Fed policy. For those betting on consumer resilience and a Fed pivot, this is a buy.