Good morning. CFOs have navigated economic uncertainty, inflation, and high interest rates over the past few years. But the Federal Reserve announced last week a 50 basis point cut to its benchmark interest rate, which is the first rate cut in four years. And big bank CFOs are optimistic about this move.
“The Fed appears to be winning the inflation battle,” Bank of America CFO Alastair Borthwick said during the BofA Securities Financials CEO Conference on Wednesday.
Inflation is now anywhere between 2% and 3%, so there’s a low growth, low inflation environment, Borthwick said. There’s potential for an “upward sloping yield curve” in the future, which tends to be a good environment for the U.S. And for banks, he said. “We’re encouraged by all of that,” he said.
The Federal Open Market Committee projected lowering rates another half point by the end of the year, expecting rates to eventually fall to 2.9% through 2026.
BofA economists predict a half-point cut in November. After that, they see a series of quarter-point cuts until the fed funds rate hits 2.75%-3% sometime in 2025, down from 4.75%-5% today, Coins2Day reported.
“We’ve had 15 years of rates being close to zero, that’s historically quite abnormal,” Borthwick said at the conference. So where we are today at about 5% down to 2.75% to 3%, tends to be a good environment for banks, he added.
During the conference, Borthwick also said that it looks like the U.S. Consumer is “still in a good place.” Deposit balances for our BofA customers have “come down a little bit,” he said. But at the very low end of the consumer, they’re still 2.5 times to three times higher than where they were pre-pandemic, he added. And on the commercial side, commercial asset quality remains pretty good, he said. “We can see corporate America profitable, cash flowing, and good balances there as well,” Borthwick said.
On Tuesday, another CFO—this time Denis Coleman of Goldman Sachs—weighed in on the Fed’s rate cut. Coleman told CNBC: “I think this first 50 basis point cut is a clear signal in terms of the new direction. And hopefully, that’ll unlock incremental amounts of confidence, and should obviously reduce the cost of capital, and perhaps some more strategic activity heading into the end of this year.”
Does he think the Fed maneuvered a soft landing? Inflation levels are coming down and unemployment is manageable, Coleman said in the interview. “They’re starting to put through rate cuts to maintain a soft landing trajectory; it’s certainly the consensus and my hope and expectation,” he said.
Central bankers will meet again Nov. 6-7 and CFOs will seemingly be hopeful for another rate cut.
Sheryl Estrada
[email protected]
Leaderboard
Jan L. Schott was named SVP and CFO of Thermon Group Holdings, Inc. (NYSE: THR), an industrial process heating solutions company, effective Oct. 14. Schott brings more than 30 years of experience. Prior to joining Thermon, she served as EVP and CFO of TG Natural Resources. Before that, Schott served as CFO of Texas Crude Energy LLC. Earlier in her career, Schott was CFO at Goodrich Petroleum Corporation.
Chris Hall was named CFO of Goodles, a mac and cheese and pasta brand. Hall is a seasoned financial executive with experience in guiding early-stage startups. Most recently, he was CFO of Sovos Brands, home to names like Rao's, Michael Angelo's, and Noosa. There, he played a role in an IPO and subsequent merger transactions. Goodles launched in November 2021.
Big Deal
Businesses can achieve growth and value by investing in more affordable, equitable, and effective health solutions, according to a new analysis by the Deloitte Center for Health Solutions.
The estimates show that reducing health inequities could create significant economic value, including a gain in GDP and benefits for businesses. By 2040, the potential gains in GDP could reach $2.8 trillion, including $763 billion for corporate profits, the research finds. Also, reducing health gaps could prevent 5 million people from leaving the workforce due to severe disability or premature death.
Although investments in addressing health inequities require upfront costs, they can “ultimately offset the rising expenses that are currently being incurred and are expected to increase over time,” according to the report.
Going deeper
A compliment goes a long way. New research released by Workhuman and Gallup tracked the career paths of more than 3,400 employees from 2022 to 2024. Employees who received high-quality recognition in 2022 were 45% less likely to have left their jobs by 2024.
Another finding is that 42% of senior executives strongly agreed that employee recognition must be a key aspect of their employee engagement and retention strategy, up from 28% from two years ago, according to the report.
“Recognition of both personal and workplace accomplishments has a significant impact on reducing turnover, increasing engagement, and boosting positive emotions,” Meisha-Ann Martin, Workhuman senior director of people analytics and research, said in a statement.
Overheard
“There's never an ideal time to step away from a place one cherishes, yet this moment feels right.”
—OpenAI chief technology officer Mira Murati announced her resignation on Wednesday. Murati posted on X the letter given to the Open AI team. She is leaving after more than six years at the company to “create the time and space to do my own exploration.” Under Murati’s technical leadership, OpenAI released ChatGPT in November 2022. Murati guided the company through a turbulent period in which OpenAI CEO Sam Altman was briefly ousted in a boardroom coup last year, before being reinstated five days later, Coins2Day reported. She served as interim chief executive during that period.
