Inflation has yet to peak, CFOs say recession is here or about to hit

A woman buys oat milk at a supermarket in Santa Monica, California on September 13, 2022.

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At CNBC’s Delivering Alpha Investor Summit in New York on Wednesday, several big names in the investing community indicated they saw no signs of slowing inflation.

David Rubenstein, co-founder and co-chairman of the Carlyle Group, said that while “we’ve been used to 2% inflation for 25 years, we have to get used to the fact that inflation isn’t going to be 2% soon” , adding that “it takes a long time, as Paul Volcker said, to get it out of the system.”

“This inflation is here to stay,” said Mary Callahan Erdoes, CEO of JPMorgan Asset & Wealth Management.

The view that inflation has yet to peak is shared by many CFOs at large corporations, according to the results of the CNBC CFO Council’s latest quarterly survey.

A majority of CFOs (57%) said they did not believe inflation had peaked. More than a quarter of CFOs say inflation is the biggest external risk factor facing their companies. That’s down from the 40% who cited inflation last quarter, as concerns over consumer demand in the slowing economy grow among CFOs, and more cite as their No. 1 now.

The CNBC CFO Council survey is a sampling of the current outlook among top finance executives. It was conducted among 21 CFOs of large organizations between September 12 and September 27. Council members include 44% of CFOs at Fortune 500 companies, and of that cohort, half of Fortune 100 companies.

Business leaders across the economy have added to this view of inflation in recent weeks. Costco CEO Craig Jelinek told CNBC’s Jim Cramer on Sept. 13, “I think you’re going to see maybe another six months to a year, things are going to start to go down.”

Unilever CEO Alan Jope said on CNBC’s “Closing Bell” on September 6: “We don’t see any slack in our landed costs. So any early optimism that inflation has reaches its maximum is moved.”

At a September 21 press conference after the Federal Reserve raised benchmark interest rates an additional three-quarters of a percentage point, Fed Chairman Jerome Powell said that if the Fed “s was expecting us to start seeing inflation come down… inflation hasn’t really come down.”

With inflation lingering, CFOs changed their minds on the timing of a recession following the Fed’s rate hikes.

Almost half (48%) of CFOs surveyed said they expected a recession in the first half of 2023, down from the previous quarter’s survey of 68%, as more and more CFOs raise recession expectations. Nineteen percent of CFOs now say they expect a recession in the fourth quarter of this year, down from 13% in the second quarter. Additionally, an additional 19% of CFOs said the US economy is currently in a recession.

Deputy Treasury Secretary Wally Adeyemo told CNBC’s Ylan Mui at Delivering Alpha that the Biden administration is doing everything it can to fight inflation to avoid a recession.

“Consumer confidence is still high. Consumer and business balance sheets are healthy. We have great momentum in the labor market in which we have created more than 300,000 jobs over the last three months on average,” said he declared.

The CNBC survey finds companies are still in hiring mode, with 57% of CFOs saying they expect to increase their workforce in the next year. Less than 10% expect to downsize.

Overall, CFOs polled in the CNBC CFO Council survey support the Fed’s policy moves to control inflation, with more than half (52%) saying its efforts have been right, while 19% said they were good. About 29% said these efforts had been poor.

“We have always understood that restoring price stability while achieving a decline, or rather a relatively modest increase, in unemployment and a soft landing would be very difficult and we don’t know, nobody knows whether this process will lead to a recession. or if so, how big this recession would be,” Powell said. of manpower, which would also help.”

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