In 1959, economist Milton Friedman told Congress that monetary policies “operate with long and variable lags.” This quote has played an important role over the past couple of years, especially as we’ve seen the Fed rapidly raise interest rates at a pace not seen in four decades.
To date, the U.S. labor market has remained stable despite this historic rate hike cycle. However, if these “long and variable lags” began to lead us into a recession, it stands to reason that America’s Fortune 500 CEOs would be among the first to spot any signs of trouble.
Discover, Fortune once again conducted a survey of CEOs, conducted in collaboration with Deloitte. We invited senior executives from Fortune 500 companies, Fortune Global 500 companies and select members of our global network Fortune community to participate.
In total, 104 CEOs representing more than a dozen industries responded to the survey. It was put into service in October.
The numbers to know
36%…of CEOs say they expect strong growth from their company (33%) or very strong (3%) over the next 12 months. Another 50% said modestly, while 12% said to be weak (9%) or very weak (3%).
48%…of CEOs are “pessimistic” (47%) or “very pessimistic” (1%) outlook for the global economy for the next 12 months. This figure was 38% when we asked them the same question in June.
51%…of CEOs say rising interest rates have had a “modest” impact on their business. Another 22% spoke of a “significant impact”, while 23% said “no impact”.
30%…of CEOs say they have reduced their investments in China, while 1% say they have increased their investments in China.
CEOs became a bit more pessimistic this quarter, after several quarters of increased optimism. In the latest survey, 48% of CEOs expressed a “pessimistic” or “very pessimistic” outlook for the global economy over the next 12 months. This marks an increase compared to 38% in June.
Some Deeper Takeaways
A little more pessimism
When interest rates started skyrocketing last year, CEOs got really pessimistic. Indeed, in October 2022, 76% of CEOs have a “pessimistic” or “very pessimistic” opinion. However, while the economy remained strong heading into 2023, 37% CEOs issued “pessimistic” or “very pessimistic” outlooks on the global economy for 12 months in February.
But it starts again: in this last investigation, 48% of CEOs have a “pessimistic” or “very pessimistic” outlook on the global economy in 12 months.
Is this jump a nothing-burger? It’s hard to say. But let’s keep an eye on it.
Another thing: Last January, Federal Reserve Governor Christopher Waller reminded the public that there was a lag of about 9 to 12 months between a Federal Reserve policy hike and its impact on the economy as a whole. The first Fed hike (March 2022) was 19 months ago, while the most recent (July 2023) is only 3 months in the rearview mirror. This is why some economists are not yet ready to declare victory.
Big headwinds: geopolitics and inflation
Among the CEOs we interviewed, 51% responded that they expected “geopolitical instability” to disrupt or influence their business strategy over the next 12 months. The same percentage spoke of inflation.
If this percentage of geopolitical instability were re-surveyed, it could be even higher today, given that this survey was conducted before the terrorist attacks in Israel.
Second, keep in mind that many of these CEOs operate around the world, and while consumer price growth in the United States has slowed significantly, not all countries have had as much chance.
There is no doubt about it: geopolitical tensions between the United States and China have been growing for some time.
And the titans of the business world are on edge.
Among the CEOs we interviewed, 1% told us that they were investing more in China, 30% told us they were investing less. This speaks volumes about the ongoing friction between the United States and China.
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