A recent survey of chief financial officers suggests that they’re more worried about the ongoing inflation crisis than the possibility of a recession.
Between the choice of recession and inflation, 73% of CFOs told a Deloitte study that they’re more concerned about inflation, according to CEO Daily. About 46% expect a recession within the next year and 39% expect stagflation.
Inflation has been decreasing since it reached a height of 9.1% in June, but the Fed signaled in last week’s Jackson Hole speech that the last year of inflation has been far from transitory and that strong actions will be necessary to bring it under control in the long term.
“While the lower inflation readings for July are certainly welcome, a single month’s improvement falls short of what the committee will need to see before we’re confident inflation is moving down. So we are moving our policy stance purposely to a level that will be sufficiently restrictive to return inflation to 2%,” says Fed Chair Jerome Powell.
Why it’s important
CFOs are becoming more pessimistic about the short-term health of the economy. Economists are expecting a recession sometime within the next 12 to 18 months, but the immediate concern of inflation suggests that it is a far more permanent problem.
As we reported last week, the Fed’s likely decision to hike interest rates for the third time this year is expected to stifle economic growth and soften labor market conditions at the cost of households and businesses.
“Powell continued to say he doesn’t think a recession is inevitable but said fighting inflation will require “a sustained period of below-trend growth.” The clear message: the Fed has significantly more interest rate increases in store, and no intention of backing off,” says CFO Daily.
President Biden signed the $427 billion Inflation Reduction Act on August 16, which economists agree will have a negligible effect on the economy and likely increase inflation further in the short term due to its immediate deficit spending.
“During the survey’s open period, inflation rose to its highest level in 40 years, and the Federal Reserve implemented the largest increase in interest rates in some 20 years. CFOs are acutely feeling the impact of both, citing inflation and broader economic concerns as their most worrisome external risks The Russia-Ukraine war and other geopolitical issues are also high on CFOs’ list of external risks,” says Deloitte.