The economic outlook is getting darker in corporate America.
According to a survey from the Conference Board, more than two-thirds of CEOs believe that the Federal Reserve's war on red-hot inflation could lead to a recession over the next few years. While a majority of executives believe the downturn will be relatively mild, 11% are worried that aggressive tightening by the U.S. central bank could cause a deep, challenging recession.
CEO confidence fell further in the second quarter as executives contended with rising prices and supply chain challenges, which exacerbated the war in Ukraine and renewed COVID restrictions in China, said Dana Peterson, the Conference Board's chief economist.
Expectations for future conditions were bleak: 60% of executives believe the economy will worsen over the next six months, an increase from the previous quarter when fewer than one-quarter of respondents said the economy will worsen over the next six months.
The U.S. is experiencing a slowing of economic growth. The Bureau of Labor Statistics reported earlier this month that gross domestic product fell unexpectedly in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still in the throes of the COVID-induced recession.
The study came amid growing fears of Wall Street that the Fed might drag the economy into a recession as it tries to tame inflation, which rose by 8.3% in April, near a 40 year high. Bank of America as well as Fannie Mae and Deutsche Bank are among the Wall Street firms that predict a downturn in the next two years, along with former Fed Chairman Ben Bernanke.
The Fed is attempting to thread the needle while wearing boxing gloves and a mouth guard, which reduces its degrees of freedom to act without damaging the real economy, said Joe Brusuelas, RSM chief economist who has questioned whether the central bank will be able to achieve a soft landing.
Policymakers raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades, and have signaled that more similar rate hikes are on the table at coming meetings as they try to catch up with inflation.
There may be some pain associated with reducing inflation and curbing demand, but pushed back against the idea of an imminent recession, identifying the labor market and strong consumer spending as bright spots in the economy. He has warned that a soft landing is not assured.
It's going to be a tough task, and it's been made more difficult in the last couple of months because of global events, Powell said Wednesday during a live Wall Street Journal event about the Ukraine war and COVID lockdowns in China.
He added that there are a number of plausible paths to have a soft or soft landing. Our job isn't to handicap the odds, it's to try to achieve that.