It’s the question that has been on the minds of business leaders across the United States for months: at what point will the Federal Reserve finally cut interest rates?
The answer, according to many CFOs, is, simply, “not this year.” In the Inside the Minds of CFOs survey, PNC found that among 300 surveyed U.S. CFOs, 17% expected the Fed to hold interest rates steady through the end of the year, while a surprising 29% said they expect the Fed to raise rates. This feedback runs counter to forecasts that the Fed would begin to cut rates in the second half of the year, as it comes closer to reaching its 2% inflation target.
The reason for such skepticism, according to PNC’s Head of Corporate and Institutional Banking Mike Thomas, may have to do with the economy’s ongoing strong performance. “Even amid persistent high inflation, the economy has held up very well, and this may be creating the expectation that inflation will remain sticky and will continue to dissuade the Fed from taking action on cutting rates.” Thomas added that this perspective may be influenced by the robust performance of CFOs’ own businesses or industries, creating the perception that economic growth may not slow sufficiently for the Fed to justify rate cuts.
PNC Chief Economist Gus Faucher noted that CFOs’ pessimism on the possibility of imminent rate cuts may have to do with the Fed’s actions – or lack thereof – thus far in 2024, despite economic predictions. “These survey numbers would indicate that perhaps CFOs are taking the Fed dot plot with a grain of salt,” Faucher said. “They have seen the Fed push out expected rate cuts so far in 2024 due to the ongoing fight with inflation, and it’s creating the sense that they can expect more of the same over the next few months.”
Political dynamics may also play a role in CFOs’ perspectives. The upcoming U.S. presidential election is creating uncertainty for many businesses, particularly those in heavily regulated industries that would be affected by regulatory changes resulting from election outcomes. The timing of the election may also factor into CFOs’ thinking on the timing of potential rate cuts. Some business leaders may be inclined to believe the Fed will not take action prior to the election in November and may not have the data necessary to make a decision on rate cuts before year end after the election has taken place.
Despite the somewhat pessimistic outlook among this cohort of CFOs, the remaining 55% of survey participants indicated they do expect one or more rate cuts this year – a view that PNC shares. PNC economists predict two rate cuts of 25 basis points each by the end of 2024.
“Some skepticism about rate cuts is understandable, given the economy’s surprising resilience, but that performance largely hinges on the strength of the consumer and employment, which may or may not continue to hold up,” Thomas said. “We will continue to monitor the inflationary environment and work with clients on what decisions they can make this year.”
Survey Methodology
PNC Bank’s Inside the Minds of CFOs survey featured responses from more than 300 CFOs at U.S.-based companies. It was conducted by Bloomberg Media Studios immediately after the Fed meeting on June 12, 2024. The study included CFOs, ages 26+, employed full time as a CFO. Companies spanned 23 industries, with 61% of them having more than 1,000 employees and 31% with revenues of $1 billion or more. About 54% are publicly owned.
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