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U.S. consumer spending is experiencing a “mitigation of growth” but not a slowdown, Bank of America CEO Brian Moynihan said Friday.

Interest rate hikes by the Federal Reserve are starting to be felt in the housing and auto markets, and renters will see their budgets squeezed as landlords pass on higher costs, he told CNBC’s “Squawk Box Europe.” But he stressed that consumer spending remains strong.

“If you raise rates and slow down the economy to fight inflation, the expectation is you have a slowdown in consumer spending. It hasn’t happened yet. So it could happen, but it hasn’t happened yet,” Moynihan said.

“You’re seeing a mitigation of the rate of growth, not a slowdown. Not negative growth.”

Bank of America expects the Fed to hike rates by 75 basis points and 50 basis points at its two remaining meetings this year, followed by two 25 basis point increases next year. One basis point equals 0.01%.

That will take the funds rate to around 5% and the Fed can then “let it work,” Moynihan said.

The current rate of 3%-3.25% is the highest it’s been since early 2008 and follows three 75 basis point rises in a bid to combat inflation, which was running at 8.2% on an annual basis in September.

Economists, politicians and business leaders are split on whether the U.S. economy is heading for a recession or is already in one. U.S. gross domestic product grew for the first time this year in the third quarter, expanding at a higher-than-expected 2.6% annually.

JPMorgan boss Jamie Dimon told CNBC he expects a recession in six to nine months given quantitative tightening and the unknown impact of Russia’s war in Ukraine.

But for now, consumers still have strong credit, unemployment is low, wage growth is strong and corporations are in good shape with strong underlying credit — even if growth and earnings are slowing, Moynihan said. However he did concede there were risks from unforeseen events with “low probability and high impact.”

“You don’t see those risks evidencing in behavior change of companies and consumers yet. People aren’t laying off massive amounts of people, they’re not hiring as many,” he said.

Asked whether the corporate credit market was flashing any warning signs, Moynihan said, “I would not confuse credit risk with pricing risk.”

“Growth and earnings may be slowing down, again because the economy recovered very fast and had major growth that flattens out a little bit. If you see negative GDP prints, of course corporate earnings might slow down,” he added.

“But on the other hand they’re still making money, the margins are still holding … the underlying credit, the underlying structure of the credit, the underlying credit quality is very strong.”

Moynihan said Europe could see a recession early to mid next year before “coming back out the other side,” with the war in Ukraine and energy crisis risks on the horizon.

“But right now you don’t see the conditions because the employment’s strong, the underlying activity’s strong, the amount of stimulus that was put in is still in the markets that people don’t see it as a deep recession.”

He added: “The energy question is much different than the U.S. The good news is the U.S. is a big economy, if we can get the energy to Europe, for the people to heat their homes and industry to run, that would be a good thing. And I know all the companies are working on it, because I talk to them about it.”

Clarification: This article has been updated to clarify that Brian Moynihan was discussing growth in U.S. consumer spending.

An economic gauge that the Federal Reserve follows closely showed that inflation stayed strong in September but mostly within expectations, the Bureau of Economic Analysis reported Friday.

The core personal consumption expenditures price index increased 0.5% from the previous month and accelerated 5.1% over the past 12 months, the report showed. The monthly gain was in line with Dow Jones estimates, while the annual increase was slightly below the 5.2% forecast.

Including food and energy, PCE inflation rose 0.3% for the month and 6.2% on a yearly basis, the same as in August.

The report comes as the Fed is prepared to enact its sixth interest rate increase of the year at its policy meeting next week. In an effort to combat inflation running at its fastest pace in nearly 40 years, the Fed has been raising rates, with increases totaling 3 percentage points thus far.

Markets widely expect the Fed to enact its fourth straight 0.75 percentage point increase at the meeting, but possibly slow down the pace of hikes after that.

The BEA also reported that personal income increased 0.4% in September, one-tenth of a percentage point above the estimate. Spending as gauged through personal consumption expenditures increased 0.6%, more than the 0.4% estimate.

However, when adjusted for inflation, spending rose just 0.3%. Disposable personal income, or what is left after taxes and other charges, rose 0.4% on the month but was flat on an inflation-adjusted basis.

The personal saving rate, which measures savings as a share of disposable income, was 3.1% for the month, down from 3.4% in August.

A separate release Friday showed that employment costs rose 1.2% for the third quarter, in line with estimates, according to the Bureau of Labor Statistics. On an annual basis, the employment cost index increased 5%, slightly lower than the 5.1% pace in the second quarter.

Fed officials watch Friday’s data points closely for clues about where costs are headed, particularly with a tight labor market in which there are 1.7 jobs per every available worker, according to recent BLS data.

The Fed prefers the PCE price reading to the more widely followed consumer price index from the BLS. The BEA measure adjusts for consumer behavior, in particular substitution of less expensive goods, to determine cost-of-living increases rather than simple price moves.

Markets think the Fed might downshift the pace of its rate hikes ahead. Futures pricing Friday morning indicated a nearly 60% chance that the central bank will increase rates 0.5 percentage point in December.

Correction: A separate release Friday showed that employment costs rose 1.2% for the third quarter, according to the Bureau of Labor Statistics. An earlier version misstated the day.

The U.S. economy posted its first period of positive growth for 2022 in the third quarter, at least temporarily easing recession fears, the Bureau of Economic Analysis reported Thursday.

GDP, a sum of all the goods and services produced from July through September, increased at a 2.6% annualized pace for the period, according to the advance estimate. That was above against the Dow Jones forecast for 2.3%.

That reading follows consecutive negative quarters to start the year, meeting a commonly accepted definition of recession, though the National Bureau of Economic Research is generally considered the arbiter of downturns and expansions.

The growth came in large part due to a narrowing trade deficit, which economists expected and consider to be a one-off occurrence that won’t be repeated in future quarters.

GDP gains also came from increases in consumer spending, nonresidential fixed investment and government spending. The report reflected an ongoing shift to services spending over goods, with spending on the former increasing 2.8% while goods spending dropped 1.2%.

Declines in residential fixed investment and private inventories offset the gains, the BEA said.

“Overall, while the 2.6% rebound in the third quarter more than reversed the decline in the first half of the year, we don’t expect this strength to be sustained,” wrote Paul Ashworth, chief North America economist at Capital Economics. “Exports will soon fade and domestic demand is getting crushed under the weight of higher interest rates. We expect the economy to enter a mild recession in the first half of next year.”

Markets were higher following the release, with the Dow Jones Industrial Average gaining more than 300 points in early trading on Wall Street.

In other economic news Thursday, weekly jobless claims edged higher to 217,000 but were still below the 220,000 estimate. Also, orders for long-lasting goods increased 0.4% in September from the previous month, below the 0.7% expectation.

The report comes as policymakers fight a pitched battle against inflation, which is running around its highest levels in more than 40 years. Price surges have come due a number of factors, many related to the Covid pandemic but also pushed by unprecedented fiscal and monetary stimulus that is still working its way through the financial system.

The underlying picture from the BEA report showed an economy slowing in key areas, particularly the consumer and private investment.

Consumer spending as measured through personal consumption expenditures increased at just a 1.4% pace in the quarter, down from 2% in Q2. Gross private domestic investment fell 8.5%, continuing a trend after falling 14.1% in the second quarter. Residential investment, a gauge of homebuilding, tumbled 26.4% after falling 17.8% in Q2, reflecting a sharp slowdown in the real estate market.

On the plus side, exports, which add to GDP, rose 14.4% while imports, which subtract, dropped 6.9%. Net exports of goods and services added 2.77 percentage points to the headline total, meaning GDP essentially would have been flat otherwise.

There was some good news on the inflation front.

The chain-weighted price index, a cost-of-living measure that adjusts for consumer behavior, rose 4.1% for the quarter, well below the Dow Jones estimate for a 5.3% gain, due in large part to falling energy prices. Also, the personal consumption expenditures price index, a key inflation measure for the Federal Reserve, increased 4.2%, down sharply from 7.3% in the prior quarter. Core prices, excluding food and energy, increased 4.5%, about in line with Wall Street expectations.

Earlier this year, the Fed began a campaign of interest rate hikes aimed at taming inflation. Since March, the central bank has raised its benchmark borrowing rate by 3 percentage points, taking it to its highest level since just before the worst of the financial crisis.

Those increases are aimed at slowing the flow of money through the economy and taming a jobs market where openings outnumber available workers by nearly 2 to 1, a situation that has driven up wages and contributed to a wage-price spiral that economists fear will tip the U.S. into recession.

“Our concerns about going into recession would not necessarily be from any of this data. It comes more from how much the Fed cranks up rates and what happens when firms and consumers respond to this,” said Luke Tilley, chief economist at Wilmington Trust.

“The most encouraging thing is you still have consumer spending, you still have job growth and wage growth and that should help on the consumer spending side,” he added. “What we would be most concerned about would be a sharp pullback by businesses in their hiring.”

The Fed is widely accepted to approve a fourth consecutive 0.75 percentage point interest rate hike at its meeting next week, but then might slow the pace of increases afterward as officials take time to assess the impact of policy on economic conditions.

“The Fed will continue to err on the side of overtightening, which is reasonable given the desire to mitigate the risk of inflation becoming entrenched at high levels,” said Preston Caldwell, head of U.S. economics for Morningstar. “After December, we’re likely to see the pace of tightening slow quite dramatically.”

Policymakers will get another, more current look at inflation data when the BEA releases a report Friday that will include personal consumption expenditures prices for September. That measure is expected to show that core prices excluding food and energy rose 5.2% from a year ago and 0.5% on a monthly basis.