FED, Ethan Harrison, Brian discussed on Balance of Power

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Beyond neutral I mean that's my expectation when I see that taking out special factors I'm still left with three to three and a half percent inflation That's not what we want If the two and a half percent inflation rate I think we have more things to ponder there So Brian he's saying that he expects at least that the fed will go above the neutral rate Does that make sense to you And by the way do we know where the neutral rate is Well I think our economists likewise going back almost two months ago now put a pretty aggressive at the time They said 7 rate increases 7 quarter point rate increases this year and people were like that can't happen and all of a sudden the market moved with them So our people are thinking they got to move pretty quickly and they have the license to do it because they're talking about three 50 basis point hikes at the next three meetings and things like that So Ethan Harrison team better to give you the exact estimates But the reality is if you even listen to the chair pow and others and just like the president there the ideas are going to have to move past because the inflation is much higher than what they were dealing with in 19 there was barely getting the target level Now it's clearly through it And so the move passes But they'll bring it back down I mean people forget they'll come up and come down if they have to It's not like they just sit there and wait it out So yes they're going to have to move higher than what people may feel short term rate is what the economists believe And I think the data shows it Yeah so with the move from the fed obviously we're seeing actually the negative real yield actually flirt with positive believe it or not Back up to positive real yield Assuming that happens which seems to be where the fed is heading what does that do for your business Well the question is if it's done the right way and it's going up for the right reasons you don't have a deep recession Banking is making more money because the flip of that real yield is we have been effectively subsidizing our customers because of what we call the zero floor So what does zero floors when real rates go below zero We can't give a consumer less than zero on their accounts We stop at zero That squeezes our margins As the rates go back up we have it The way you think about that David is when they went from two to two and a half target rate last cycle just that very end of the cycle And those 12 month period are deposits grew 5% in our rate maxim rate pay was around a hundred basis points or 80 basis points or something like that Why is that true Because the checking balance is zero don't go up And that's why it's good for our bank is because we basically been at a floor which is basically been subsidizing a customers for many years And frankly remember I've been CEO of since 2010 And most of my career isn't a zero rate environment It's just a short period of time where it moved and went right back down with a pandemic but the realities will make more money and we told people what those estimates were for NII 600 plus $1 million next quarter and then grows from there And we have a 2 trillion of posits and they're very stable And it'll be very good for our bank Given that it's done in a way that doesn't create a deep recession on your side $2 trillion in deposits is really important The last time I checked I think back of America is the largest dollar deposit to take her in the world Do you have to pay more for those deposits in a world where you're going to positive real yields in the rates are going up And it's been a long time since we actually bought CDs and we thought we didn't make some money off of them Well that's what happened so that more rate sensitive product goes up But the rowdy is 40% of those 2 trillion are not interest bearing So zero is zero in any environment And the only question is will people pull money out of the accounts that didn't happen last time They actually grew during the during the repricing cycle we grew all through and even during the 5th balance sheet being leveled off and came down a little bit Now this is different There's just a lot more liquidity in the system and we'll see it in money will go in the markets if the returns are better and it's short term Medium term treasury rates go up and money market funds have become more attractive but we have those products too So we place our customers where they get the best deal But what drives our deposit base is the huge non-interest bearing checking accounts you know 35 million check accounts We have 5 million more digital customers than we did in 19 to give you a sense And I think we have 3 million more checking customers than we did in 19 And those customers that money's money in motion stays with us and stays a little in our middle market banking stuff It's similar a little different mix type of debate But it's a similar thing to operating accounts I mean that is the money it's emotional as companies So we have a lot of customers with their operating accounts therefore a lot less sense of the highest we got last time I think it was 80 basis points Brian you mentioned earlier this horrific war going on over in Ukraine All of us I think are horrified but we're watching I understand Bank of America doesn't really have much exposure in Russia.

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