The economic outlook is rapidly darkening in corporate America.
More than two-thirds of CEOs – 68% – believe that the Federal Reserve's war on red-hot inflation could tip the economy into a recession over the next few years, according to a new survey from the Conference Board. 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 trigger a deep, "challenging" recession.
"CEO confidence weakened further in the second quarter, as executives contended with rising prices and supply chain challenges, which the war in Ukraine and renewed COVID restrictions in China exacerbated," said Dana Peterson, the Conference Board's chief economist.
Expectations for future conditions were also bleak: About 60% of executives believe the economy will worsen over the next six months – a stark increase from the previous quarter, when fewer than one-quarter of respondents expected conditions to deteriorate.
Economic growth in the U.S. is already slowing. The Bureau of Labor Statistics reported earlier this month that gross domestic product unexpectedly shrank in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still deep in the throes of the COVID-induced recession.
The study comes amid growing fears on Wall Street that the Fed may drag the economy into a recession as it seeks to tame inflation, which climbed 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 forecasting 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 causing damage to the real economy," said RSM chief economist Joe Brusuelas, 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, similarly-sized rate hikes are on the table at coming meetings as they rush to catch up with inflation.
Fed Chairman Jerome Powell has acknowledged there could be some "pain associated" with reducing inflation and curbing demand but pushed back against the notion of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing is not assured.
"It's going to be a challenging task, and it's been made more challenging in the last couple of months because of global events," Powell said Wednesday during a Wall Street Journal live event, referring to the Ukraine war and COVID lockdowns in China.
But he added that "there are a number of plausible paths to having a soft or soft-ish landing. Our job isn't to handicap the odds, it's to try to achieve that."