As markets watch for news from the Fed today, some executives think there may be a more painful time ahead, and everyone involved in capital markets has to be prepared for whats to come.
Thats what finance leaders discussed in a panel session on Monday during the annual Milken Institute Global Conference in Beverly Hills. CEOs talked about the state of the global financial markets and also gave their assessments on interest rates in the U.S. and where the business environment is headed.
Citigroup CEO Jane Fraser: What were seeing in our credit card business is, while the spending is coming down, the services side is incredibly strong. In the U.S., you still have a trillion dollars of excess savings sitting in the top two quintiles of depositors. Americans like spending money and dont like [to stop] spending money. Thats driving tightness in the labor market. Even though it is clearly softening, even though credit will tighten, a resolute Jay [Powell] will probably stay resolute in making sure that inflation is brought under control. We need him to, but I fear, therefore, a more painful time ahead than the market would like.
Rishi Kapoor, Co-CEO, Investcorp: I think our view is that the Fed basically is in the gentlest, but most firm manner possible, telling us one thing and one thing alonescale back your hiring plans, scale back your spending plans; we need the economy and the demand to slow down. And they will not stop raising rates until they see that. Is the pace of rate increases going to be the same torrid pace as we saw in 2022? Highly unlikely. And also highly unlikely that we are going to see rate cuts later this year as being priced into the markets, apparently. Rates will be high for long.
Now for us, were using a 444 regime, where we say baseline, expect a relatively modest low level of unemployment at around 4%; inflation running higher than the central bank targets of around 4% but also interest rates higher than the widely accepted, neutral rate at about 4%. With that 444 mindset, what youre really looking to capture is, there is the macro backdrop supported by long-term secular trends that will inevitably offset the noise.
Robin Vince, president and CEO, BNY Mellon: The capital markets, all participants, whether they be governments, private funds, banks, everybody has to prepare for the eventuality that hey, maybe we did have a significant economic contraction and rates have to go down a lot, or maybe not, and inflation is sticky, maybe it does have to go up higher than just the one more rate rise. I think being in the preparedness business, and being able to withstand all of those outcomes is an incredibly important lesson that we should have all learned over the course of the past few months, whether it was what happened in the U.K. last year, whether its what happened in the events of March.
David Hunt, president and CEO, PGIM: I think that without a doubt rates are going to be higher for longer than whats priced into the market right now. And as our chief economist likes to say, at higher rates bodies will continue to float to the top over the course of the summer.
Sheryl Estrada
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Big deal
Mercer has released the results of its March 2023 U.S. Compensation Planning Survey. Employers reported 2023 annual merit increases averaged 3.8% while total compensation increased by 4.1%. That's slightly lower than what employers projected in November3.9% for merit increases and 4.3% for total increases. However, this is still an increase from 2022, when actual merit and total increases were 3.4% and 3.8%, respectively. Life sciences, energy, and services lead with 4.5%, 4.4%, and 4.4% total compensation increases, respectively, according to the report. Meanwhile, health care services and retail and wholesale lag, with 3.6% total compensation increases.
Going deeper
"How Midsize Companies Can Drive Digital Transformation," a new report in Harvard's Business Review, finds there are still common issues for mid-market leaders across the spectrum regarding making a move toward an increasingly digital future. "Perhaps most notably, resourcescapital, people, timeare always an issue," according to the report. "Resources are typically more constrained in mid-size companies than in a larger enterprise where digital transformation is often strategically managed by a dedicated department or team." This report covers five ways mid-market companies can achieve a successful digital transformation.
Leaderboard
Markus Neubrand was named CFO at Guess?, Inc. (NYSE: GES), effective Aug. 1. Neubrand will succeed interim CFO Dennis Secor, who will remain with the company as EVP through March 31, 2024, to support a transition. Neubrand brings two decades of finance and operations experience. He currently serves as group CFO of luxury fashion brand MCM Worldwide (MCM Global AG), a role he has held since January 2021. Before that, he spent 17 years at Hugo Boss, in roles including managing director of Scandinavia, and group director of financial planning, then COO and CFO. Neubrand began his career at Deloitte in Germany.
Patricia Kaelin was named CFO at Safe & Green Holdings Corp. (Nasdaq: SGBX), a developer, designer, and fabricator of modular structures, effective May 2. Kaelin served as CFO of Buddies Brand, a privately held consumer packaged goods (CPG) company. Before that, she served as CFO of 1933 Industries, Inc., a publicly traded CPG company. Kaelin also served as CFO of business operations at Clifton Larson Allen, a CPA and consulting firm, and as consulting CFO for multiple companies on a fractional basis. She began her career at BDO USA, LLP, spending seven years in public accounting.
Overheard
"Belonging is closely correlated to strong workplace friendships, based on our findings. However, companies cannot only encourage weekly coffee chats. It must be embedded in company values so that everyone is aware of the expectations about prioritizing workplace connections. When companies prioritize workplace belonging, they boost productivity, elevate their employer brand, and build a more attractive culture for current employees and potential hires."
Natalie Baumgartner, the director and chief workforce scientist of the Achievers Workforce Institute, wrote a Fortune opinion piece about research on the value of strong workplace relationships.
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