Cleveland Fed survey: businesses expect inflation to ease, investment to weaken over the coming year
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Business executives surveyed by the Federal Reserve Bank of Cleveland expect consumer price inflation to ease slightly over the coming year, while wage growth and employment conditions are expected to remain broadly stable.
Executives now anticipate CPI inflation of 3.3% over the next year, down from 3.7% in the second quarter. The decline suggests that businesses are seeing somewhat less persistent inflation pressure, although expected inflation remains well above the Federal Reserve’s 2% target.
Expectations for the labor market have changed little. Wage growth is projected at 2.8% over the coming year, only slightly below the 2.9% level recorded in last year’s survey. Businesses also expect relatively little change in employment levels, pointing to a labor market that remains stable rather than undergoing a significant acceleration or deterioration.
A more notable shift is visible in research and development spending. Executives expect R&D expenditures to grow just 2.0% over the coming year, down sharply from the 3.1% expectation in last year’s survey. The slowdown in anticipated investment could indicate greater caution among businesses as they assess economic conditions and financing costs.
Inflation expectations are moving in the right direction, while wage and employment expectations remain relatively stable. However, the significant decline in expected R&D spending suggests that businesses may be becoming more cautious about future investment amid the US-Iran war, AI bubble concerns and Federal Reserve tightening bias.
For background, the Cleveland Fed Survey of Firms’ Inflation Expectations (SoFIE) is a large quarterly representative panel of firms in the manufacturing and services sectors that was created to measure inflation expectations of chief executive officers (CEOs) in the United States.
This article was written by Giuseppe Dellamotta at investinglive.com.