Fed Survey Shows Firms' Inflation Outlook Rising, Higher Rates Now a Top Concern
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Chief financial officers at U.S. companies have raised their inflation forecasts for this year and next and are beginning to cite higher interest rates as one of their biggest concerns, according to a quarterly survey released by the Federal Reserve on the 23rd. Finance chiefs expect to raise prices by an average of 5.3% this year, up from 4.6% at the time of the second quarter and 3.6% at the start of the year. Planned price increases for next year average 4.5%, up from 4.1% at the second quarter and 3.6% at the start of the year. While inflation was mentioned less often as a top concern, "monetary policy" drew the most mentions, with about 20% of companies citing it as their biggest worry, up from less than 15% in the previous survey. Richmond Fed Vice President Waddell suggested that while finance chiefs remain strongly optimistic about the economy overall, concerns about financing are beginning to cloud the outlook for small and midsize businesses, saying that "where there are challenges, they are most pronounced among smaller firms and those with constrained access to funding." About one-fifth of small and midsize businesses said such constraints were hindering expansion plans or making it harder to absorb costs, and across all companies, capital spending over the next six months is expected to decline compared with the outlook six months earlier. Among companies not planning capital investment, about 42% cited "worsening financing conditions" or "the need to hold cash" as the reason, up from 32% six months earlier. The survey was conducted from August 17 to September 4 among about 500 companies by the Atlanta and Richmond regional Fed banks together with Duke University's Fuqua School of Business, before the Fed's rate hike decision last week, a time when the Fed's policy debate was tilting toward the possibility of a rate increase and investors were beginning to brace for higher borrowing costs.