Chief financial officers at major corporations have been telling Federal Reserve presidents that it is time to stop interest rate hikes, not simply pause them.
This consumer-focused CFO pointed to average transaction data from the grocery segment that had remained $53 year-over-year, showing the weakness in the lower-end consumer and subprime consumers being "way more impacted." But the CFO said in the last few months average transaction value has been decelerating. "That's the lag effect," he said.
The Fed has forecast unemployment rising above 4% and peaking later this year, but has stated in recent FOMC statements that it watches lagging indicators closely and adjusts its policy accordingly. CFOs said the labor market remains tight and the wage gains, while slowing, have created a higher wage base that can't be turned back. One CFO noted that margins are "razor thin, if not negative" as a result of labor costs.
Still, he agreed with CFOs that the big risk is that when labor breaks, it is often much more sharply than models forecast. "Models say unemployment moves up smoothly, but that never happens. It isn't just one- or two-tenths of a percentage point," Kroszner said. "It does not move like [the Fed] are forecasting. It really doesn't happen.
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