US corporate finance chiefs lifted their inflation expectations and now rank monetary policy as their top concern, a Federal Reserve survey found. The poll was taken before the Fed's latest quarter-point rate hike, as smaller firms report tightening financing conditions.
Company chief financial officers now expect to raise prices by an average of 5.3% this year, up from 4.6% in the second-quarter survey and 3.6% at the start of the year. For next year, CFOs see price increases averaging 4.5%, versus 4.1% in the prior survey and 3.6% at the start of the year, according to the quarterly Federal Reserve poll of roughly 500 firms.
Monetary policy overtakes inflation as the top worry
The jump in pricing expectations comes even as CFOs focused less on inflation among their list of concerns. Instead, monetary policy was the most cited issue, with around 20% of firms putting it at the top of their list, compared with less than 15% in the last survey.
But the survey ran from Aug. 17 to Sept. 4 across a national sample of firms of all sizes — before the Fed hiked its policy rate by a quarter of a percentage point last week, but as Fed policy debate shifted toward likely rate hikes and investors braced for higher borrowing costs.
Financing strain hits smaller firms
Overall optimism about the economy among financial officers remained strong, but financing concerns have begun to dim the outlook among smaller businesses, said Sonya Waddell, a vice president and economist at the Richmond Fed, which conducts the survey with the Atlanta Fed and Duke University's Fuqua School of Business. According to Reuters: "Where there are challenges they are most pronounced for small and financially constrained firms", Waddell said in a press release accompanying the survey.
About a fifth of small firms said financing constraints were holding back expansion plans or making it hard to cover costs, and firms overall anticipate less capital investment over the next six months than they did six months ago. While Fed officials say they do not view current financial conditions as restrictive, among firms not planning to invest, about 42% cited unfavorable financing or a need to preserve cash, up from 32% six months ago.
Source: Investing.com
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