The chief executives of America's biggest companies are feeling increasingly sour about the state of the U.S. economy as it confronts the threat of high inflation and rising interest rates.
The CEO Economic Outlook Index plunged 11 points this week to the lowest level in more than two years, according to the Business Roundtable. The index remains above the expansion or contraction threshold of 50 at 73.
With continued supply chain challenges and inflation uncertainty, many CEOs remain cautious about domestic plans and expectations for the next six months, according to Mary Barra, the Chair of Business Roundtable, a statement from General Motors CEO.
Sentiment fell across the board. Plans for hiring fell by 17 points, expectations for sales declined by 8 points and plans for capital investment dropped by 7 points over the last quarter.
The survey, conducted between October 31 and Nov 28., found that the biggest problems facing CEOs are growing labor costs, increasing material costs, ongoing supply chain disruptions and price pressures from the energy sector. Interest rates have been raised at the most aggressive pace since the 1980s in a bid to fight inflation. In March, policymakers have approved six straight rate hikes, putting the federal funds rate in a range of 3.75% to 4% from near zero.
Although officials indicated a preference for a slightly smaller rate increase at their December meeting, they also signaled an appetite for a higher peak interest rate.
The time for rate increases may come as soon as the December meeting, according to a speech in Washington last week. Given our progress in tightening policy, the timing of that moderation is less significant than the questions of how much longer we need to raise rates to control inflation and the length of time it will take to hold policy at a restrictive level. With inflation still high, economists believe that the Fed will trigger a recession with higher interest rates, which could cause consumers and businesses to fall back on spending.
Bank of America, Goldman Sachs, and Deutsche Bank are among the major Wall Street firms forecasting a downturn next year, although they remain uncertain about its severity.