Quick Look:

  • About a third of CFOs have delayed, reduced, or canceled investment plans because of difficulty assessing the impact of the November 5 election on regulation, taxes, and other policies, the Richmond and Atlanta Federal Reserve Banks said Wednesday, citing a quarterly survey.
  • Although their optimism about the economy has waned compared with the second-quarter survey, CFOs expect inflation to cool and anticipate revenue and employment growth in the third quarter. The two regional Fed banks cited the survey conducted jointly with Duke University's Fuqua School of Business.
  • "Despite economic uncertainty, businesses still expect a soft landing," Richmond Fed economist Sonya Ravindranath Waddell said in a statement. "Price growth expectations continue to ease back toward a more normal range."

Deeper Insights:

The unpredictable outcome of the presidential election has shown multiple signs of weakening short-term business confidence.

CFOs' risk aversion has reached its highest level since 2009, as they worry about inflation, the economic outlook, overseas conflicts, and the potential election outcome. Deloitte's quarterly survey last week reached a similar conclusion.

S&P Global Market Intelligence said Monday that the ambiguous political outlook has weighed on demand, hiring, investment, and business sentiment.

S&P Global Ratings predicted Tuesday that economic growth next year could slow to 1.8% from 2.7% in 2025, noting that high capital costs and recent "policy uncertainty" will curb capital expenditure and hiring.

"A Trump victory could lead to policies that push up inflation and dampen growth, especially if Republicans sweep Congress," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, on Wednesday.

By contrast, "a full Democratic sweep, or a Harris win with a Republican or divided Congress, would have a more moderate impact on the economic outlook," Allen wrote in a note to clients.

The Atlanta Fed forecasts the economy could expand at a 2.9% annualized rate in the third quarter. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 1.4% in the first quarter and 3% in the second quarter.

CFOs expect economic growth of 1.9% over the next 12 months, unchanged from the second quarter, the Atlanta and Richmond Fed banks said.

Finance executives ranked regulation and monetary policy as the top two concerns stemming from the election, followed closely by corporate taxes and fiscal policy, the two regional Fed banks said.

"Based on the CFO survey and other outreach from the Richmond Fed, we are hearing anecdotal evidence that uncertainty around corporate tax rates, tariffs, and industry-specific regulatory environments may be prompting firms to delay investment decisions until after the election," Waddell said in an email response.

Monetary policy was the top concern for CFOs for the fifth consecutive quarter, the two regional Fed banks said, citing the survey of 450 finance executives that ended September 6.

Inflation fell from second to fifth place in the second-quarter survey—"the lowest level in a long time," Waddell said.

"Other inflation and price expectation data in the Richmond Fed survey also indicate that while firms still expect inflation to be slightly higher next year, they expect it to continue returning to normal," she said.

"The decline in inflation concerns is certainly positive, supporting the view that price growth can ease while employment continues to grow—that is, a soft landing—" in which the Fed slows inflation without triggering mass layoffs or a recession, Waddell said.

Falling price pressures, a softening labor market, and recession risks prompted the Fed last week to cut its key interest rate by half a percentage point, to a range of 4.75% to 5%. Policymakers noted that inflation has slowed from above 9% two years ago to near the 2% target.

The share of firms increasing spending (excluding capital expenditure) over the past three months fell to 44.6% from 46.1% in the second quarter, the two regional Fed banks said.

"There is evidence that business investment is lower in election years than in other years, but this could depend on a variety of factors—the passage of risk events, the current policy environment, monetary policy changes, financial constraints facing firms, etc.," Waddell said. "The direction of investment is not entirely clear yet."