Roger Ferguson on new CEO survey: Recession concerns have 'faded drastically'

New data shows some cautious optimism among CEO’s despite A complimated complicated economic landscape. These results are part of this quarters Conference Board measure of CEO Conference confidence survey that was done in collaboration with the Business Council. For more on this, we want to bring in former Fed Vice Chairman Roger Ferguson. Roger, of course, is the Vice Chairman of the Business Council and a Trustee with the Conference Board, also a CNBC contributor. And Roger, this is pretty different. This is the highest level of CEO optimism you’ve seen in about two years. Yeah, that’s absolutely correct. But the other side of it is, as you pointed out in the opening, I would describe this as cautious optimism, not wild enthusiasm. The other thing I found very interesting is their expectations for the next six months really are for no major change. So I think it feels like from the standpoint of CE OS, things are sort of moving sideways, not up, fortunately, not down as well, but no great enthusiasm. Their concerns about recession have faded pretty drastically, though concerns about recession have faded drastically for sure. They, like everybody else, has moved to expectations perhaps of fewer rate cuts, if any. So I think they’re reflecting the market, but they also aren’t expecting to go on a hiring binge. They think that the whole, you know, job’s roughly where they are and they think they have to pay wage increases of somewhere between 3 and 4%, most of them. So it feels like compared to the market, which has been very enthusiastic, it feels like CE OS are really much more holding patterning, waiting to see what happens. What are they worried about if it’s not a recession? Oh, that there’s series of concerns. And one of the things that’s going on here is that in fact their degree of concern about risk has gone up. So, you know, cyber is certainly #1. The regulatory risk is another one. They are worried about what they call economic and financial conditions. And all of these risk factors and concerns have been going up steadily over the last several surveys. So I think part of what’s going on here from the standpoint of ACO is even the macro situation is no longer having recession on the horizon. There are a number of other things on their inboxes that are really causing them trouble, like a a break, potentially some sort of a break or a mismatch in the financial system. I think they’re worried a little bit about that. I think like many others, they are observing that the possibilities in the federal government are much more limited now, even as you know we need more headroom. So I think they’re observing a number of things. They also like everyone else are focused on geopolitical risks, which obviously have gone up, haven’t spilled over to the US economy yet, but not impossible. So I think they see some of the things, same things that we see in the macroeconomic environment. Hey, Roger. We did a story just a little bit ago maybe in the last 10 minutes about how at Google some of the employees there are voicing their discontent over the idea that even though Google is reporting great earnings and revenues up, that hasn’t translated into the sort of pay increases that they might anticipate. What can you say just about how CEOs are feeling about the labor market, who might have the upper hand at this point? Well, I’m not going to comment specifically on Google, but for CEOs overall, I think right now they’re finding it’s a little easier to find jobs. As I said, they expect to increase wages roughly around 3%. And so it feels as though the labor market is is easing up from, you know, the CEO surveys. I can’t speak to the Google situation directly, but I think it feels, as Powell has said, that labor markets are coming into better balance. I mean, that’s a big part of what we worry about with inflation. If wages continue to climb, inflation will continue to climb 3 to 4% doesn’t sound crazy. And if CEO’s feel like OK, though the labor market is starting to ease a bit, it’s not as difficult to keep employees. It’s not as difficult to find new ones. That could be a significant shift. Well, it absolutely could be. I mean it may well be one of the reasons that the Fed is still in some ways expecting to cut rates this year, but it’s not a done deal yet. You know, I think we’ve been surprised as we’ve talked about several times on how sticky inflation was in the first quarter this year. So I think this notion of caution, you know all around is really important and it’s obviously clear that we don’t fully understand inflation dynamics just yet in the post pandemic world. So that may may be another thing that’s going on both in the heads of monetary policy makers and in the heads of CEOs. Hey Rodger, I don’t know if you saw Druckenmiller on the other day, but this stuff he was saying, I think if I got you out to a bar with a couple of cocktails, I think you would have based, I think you would say the same. I do. I think in you’re always very, you know, sort of reasonable and guarded about when you criticize the current Fed. But he kind of said what you were saying only on steroids, but you’ve been saying did you see any of that? Look, I saw a little bit of it and I have a high regard for Stan. I am as you say, you know, I’m cautious about criticizing anybody. It’s a tough job. Look, the inflation problem here in the United States I think caught the Fed, you know, wrong footed at the very beginning. They moved very quickly to get things under control. But you know the last mile as we’re calling it has proven to be really pretty challenging. And you know one of the things that they did I think wisely was move away from forward guidance. But when they’re in the world of being data dependent, it makes it very, very difficult to know exactly what they’re going to do because they themselves don’t know what they’re going to do until they see the data. You never really understood the rationale for all the hope for these, this huge easing cycle of of five or six cuts. You never saw that. And who what did they see that you that you didn’t see that you even think we were going to do that? It’s like wishful thinking. Well, it’s virtual thinking. You know better than I do as well as I do that, you know, markets are looking for any hope that will keep driving equity valuations up. Not surprising. And also I think markets are underestimating. You know how serious the Fed is around the 2%. Every time you get a slightly weaker GDP report that the notion is, oh, the feds going to cut to offset a slight weakness in GDPA. Slight weakness in GDP may be the natural outcome of restricted policy. It may be what they’re really hoping for. And so I think there’s a little bit of an intellectual misunderstanding with market participants thinking the Fed would do anything to avoid weakness, when in fact the Fed’s mandate has everything to do at this stage around getting inflation under control.