In 1959, economist Milton Friedman infamously told Congress that monetary policies “operate with long and variable lags.” This quote has loomed large over the past two years, especially as we’ve witnessed the Fed rapidly increasing interest rates at a pace not seen in four decades.
As of today, the U.S. labor market has remained stable despite this historic cycle of rate hikes. However, if these “long and variable lags” were to start steering us toward a recession, it stands to reason that America’s Fortune 500 CEOs would be among the first to detect any signs of trouble.
To find out, Fortune once again ran a CEO survey, conducted in collaboration with Deloitte. We invited the top executives at Fortune 500 companies, Fortune Global 500 companies, and some members of our global Fortune community to participate.
In total, 104 CEOs representing more than a dozen industries responded to the survey. It was fielded in October.
The numbers to know
36%…of CEOs say they expect their firm’s growth to be strong (33%) or very strong (3%) over the coming 12 months. Another 50% said modest, while 12% said either weak (9%) or very weak (3%).
48%…of CEOs have a “pessimistic” (47%) or “very pessimistic” (1%) outlook of the global economy over the next 12 months. That figure was 38% when we asked them the same question in June.
51%…of CEOs say increased interest rates have had a “modest” impact on their business. Another 22% said a “significant impact”, while 23% said “no impact.”
30%…of CEOs say they’ve reduced their investment in China, while 1% say they’ve increased their investment in China.
CEOs turned a bit more bearish this quarter, following several quarters of improving optimism. In the latest survey, 48% of CEOs expressed a “pessimistic” or “very pessimistic” outlook for the global economy in the next 12 months. This marks an increase from 38% in June.
A few deeper takeaways
A little more pessimism
As interest rates began to spike last year, CEOs got really bearish. Indeed, back in October 2022, 76% of CEOs held a “pessimistic” or “very pessimistic” view. However, as the economy held firm entering 2023, just 37% of CEOs in February held a “pessimistic” or “very pessimistic” 12-month outlook of the global economy.
But that’s ticking up again: In this latest survey, 48% of CEOs held a “pessimistic” or “very pessimistic” 12-month outlook of the global economy.
Is that jump a nothingburger? It’s hard to say. But let’s keep an eye on it.
Something else: Back in January, Federal Reserve Governor Christopher Waller reminded the public that there’s about a 9-to-12-month lag between a Federal Reserve policy hike and its impact on the broader economy. The first Fed hike (March 2022) was 19 months ago, while the most recent (July 2023) is just 3 months in the rearview mirror. That’s why some economists aren’t ready to declare victory just yet.
Big headwinds: Geopolitics and inflation
Among the CEOs we polled, 51% answered they expect that “geopolitical instability” will likely disrupt or influence their business strategy over the next 12 months. The same percentage said inflation.
If re-polled that geopolitical instability percentage might be even higher now, given that this survey was conducted prior to the terror attacks in Israel.
Second, keep in mind that many of these CEOs do business across the globe, and so while consumer price growth in the U.S. has decelerated significantly, not every country has been so lucky.
There’s no doubt about it: Geopolitical tensions between the U.S. and China have been increasing for quite some time.
And it has corporate titans on edge.
Among the CEOs we surveyed, 1% told us they’re investing more in China, 30% told us they’re investing less. That speaks volumes to the ongoing friction between the U.S. and China.
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This story originally Appeared on Fortune