It’s also an eventuality Bank of America has predicted since March, when analysts warned that the Fed would push consumers to the “point of pain” in order to tame inflation.

And now, according to Bank of America’s CEO, Brian Moynihan, that time has come.

Speaking to CNBC’s Squawk on the Street, Moynihan said the way consumers are acting is consistent with a “low growth, low inflation economy,” which the U.S. saw from 2016 to 2019.

In a given year, Bank of America customers spend $4 trillion dollars—be it using a debit or credit card, writing a check, confirming a bank transfer, or taking cash out to spend.

From 2021 to 2022 that spend grew by 10%, Moynihan said, and began dropping to 9% in the first quarter of 2023.

Now that growth figure has dropped to 4.5%, he added, signaling consumers are either too nervous to spend the money they have, or have less in their pandemic-boosted savings accounts to sustain their spending levels.

“That is the same of September and October,” Moynihan continued. “That growth rate…is consistent to where we were in ’16, ’17, ’18, ’19, which was a low growth, low inflation economy.”

“Consumers’ activity has slowed down…It’s slowed by half, and that means the consumer is being slowed down by the interest rate environment and all the stuff going on.”

Lower-income homes are impacted more

Moynihan went on to support an observation made by Citigroup CEO Jane Fraser, who said “cracks” are beginning to show in consumer spending, particularly by lower-end consumers.

Fraser said that while Citi’s data shows consumer spending is still “good” and is in positive figures, the growth has begun to “come off,” explaining to CNBC that in September numbers, “the softening of the growth in demand, is…evident.”

Savings are down for lower-end consumers, Fraser added: “They’re very low at the moment, and I think some of the excess savings from the COVID years are close to depletion.”

Moynihan said that Bank of America has found similar trends. He said median-income households have lower account balances and are spending down their pandemic war chests.

Higher-income households have similarly moved their money out of checking accounts, but have instead moved their fortunes into investments.

“You’re seeing that deterioration of positive balances and consumers in those medium-income households down a little bit,” Moynihan said. “That means they’re spending some money in excess of what they bring in. So that means the economy has slowed down, consistent with a low growth, low inflation economy.”

Is the Fed’s plan working?

If the so-called YOLO (you only live once) spenders have indeed run dry and the economy is inching back, as Moynihan says, to low growth—then has the Fed’s plan really paid off?

The first priority of the Fed was to tackle inflation—which has indeed come down. In September 2023, inflation sat at 3.7%, down from 8.3% a year prior.

Economists seem largely satisfied by this effort—though many have warned the most difficult part of bringing inflation down lies ahead.

Treasury Secretary Janet Yellen remarked inflation is being “really well behaved,” while Wharton professor Jeremy Siegel believes rates will hold steady in November.

In his weekly Wisdom Tree commentary, professor Siegel observed there is still a great deal of economic uncertainty—not least tensions in the Middle East.

Despite this, professor Siegel wrote: “We’re poised for a year-end rally in equities and a good year for 2024.”