Bank of America’s Moynihan says the Fed can pull back on policy help

Bank of America CEO Brian Moynihan encouraged the Federal Reserve to ease up on its ultra-easy monetary policy, saying Monday that the urgency for the pandemic-related response is abating.

Speaking a day before the central bank begins its June policy meeting, the head of the second-largest U.S. banks by assets told CNBC that inflation-related issues are top of mind for small business executives.

At the same time, the Fed is continuing to buy at least $120 billion of bonds each month and is holding benchmark short-term borrowing rates near zero.

“I think the reality is the accommodation is not needed at the same level, clearly,” Moynihan told CNBC’s Becky Quick during a “Squawk Box” interview. “The question is, when do you remove it? And the great debate is when is [inflation] transitory or not transitory.”

With consumer price inflation running around 5% year over year, the Fed is well ahead of its 2% inflation goal.

However, policymakers insist the recent rise is due to factors that will pass, including supply chain bottlenecks and pandemic-related demand, while the yearly numbers are distorted by the state of the 2020 economic shutdown.

“That’s the real question,” Moynihan said. “I think that we have to be much more careful right now than we’ve been, because we’re seeing wages grow, you’re seeing sticky prices grow. … Are they transitory? Probably, but we won’t know until we get there.”

Banks are awash in deposits and reserves while the Fed holds rates down and keeps buying Treasurys and mortgage-backed securities each month.

At the same time, Moynihan said consumer spending is up 20% year to date from 2019, and small businesses have shifted from damage-control mode into struggling to meet surging demand.

For small business, “Six months ago it was all about pandemic, pandemic, pandemic,” Moynihan said. “So now what’s the word? Getting labor and inflation and shortages.”

Moynihan said those pressures are causing price increases.