CFOs Juggle Growth Aspirations, Economic Woes in Latter 2024

The CFO role has taken on a new identity in the modern business environment. The responsibilities of today’s CFO extend well beyond traditional financial management and branch out into strategy, requiring CFOs to monitor trends more closely than ever before.

It’s no longer enough to simply monitor the financial well-being of your organization, you must keep a much broader perspective with a growth mindset while also mitigating future risks. The office of the CFO in 2024 is the perfect example of the “new normal” for CFOs. 

As we move beyond the halfway point in 2024, there are two key trends that CFOs will be monitoring diligently and strategizing appropriately. It’s no secret that we are referring to the actions of the Federal Reserve and the 2024 presidential election. There are other important data points, but these two factors will drive most financial decision-making and organizational policy decisions as we move into the third and fourth quarters of 2024. 

‘Fed’ behavior going forward in 2024

The Fed Funds Rate, which currently sits at a range of 5.25-5.50% after the most recent meeting in June, has a significant impact on the cost of financing your business, buying a home or buying a car. The rate range has remained stable since July 2023, seeing 11 straight increases leading up to that point. There are four remaining Federal Open Market Committee (FOMC) meetings with three of those meetings related to a summary of economic projections.

CFOs will be watching these meetings for the rest of the year to understand how the Fed will act whether they will increase rates, hold at the current range, or begin cutting rates to prevent excessive economic contraction or a more severe recession. At the beginning of the year, the Federal Reserve forecasted three rate cuts for 2024, but due to stubborn inflation that forecast has now been reduced to a single rate cut in 2024, only as inflation is believed to be trending toward the goal of two percent but not close enough. 

Financial and non-financial impact of rate changes

The impact of an interest rate cut on business borrowers is profound, as the cost of capital has skyrocketed over the last two years. As an example, a rate cut as low as a quarter of a point (0.25 percent) can save a business $2,500 in annual interest for each $1 million borrowed. While this may not seem like much, apply that to tens of millions of dollars that a decent-sized company may be borrowing at any point in time. The impact can then become quite significant. 

Beyond the concrete financial impact, the psychological impact of a rate cut is just as compelling as the savings itself, as it would signal that our economy is “back on track” and inflation is tapering off. The financial flexibility and psychological shift open the doors for CFOs to consider re-investment in key elements such as capital expenditures, facilities expansion and increased hiring of employees. All have which been tempered of late.

The fate of our nation in November

Aside from the behavior of the Federal Reserve, the 2024 presidential election is another thing for CFOs to keep an eye on. The occupant of the White House and the specific policies enacted by them can have a direct and fundamental impact on tax rates, government subsidies, immigration and a litany of other economic factors that will affect individuals and small businesses and even multi-national conglomerates. Credits may be added or eliminated that could either aid or hinder your business or industry. 

CFOs will need to follow the election closely and prepare for multiple scenarios as it relates to taxes, regulations and other economic trends to be able to position their business for success no matter who wins the election. 

Additional useful data for CFOs

Beyond interest rates and the presidential election, CFOs still have quite a bit on their plates when it comes to external factors and statistics that may impact their respective businesses. The volume of data available alone can be a challenge. CFOs who can sort through the noise and utilize the data that matters to their business and their industry will be able to distinguish themselves from being a “good” CFO to a “great” CFO. The following data will be important throughout the rest of the year:

• Industry key performance indicators: These will vary widely across industries and business to business, but identifying industry KPIs will allow CFOs to benchmark their company against industry competitors to have a better sense of their position in the broader environment.
• Job Opening and Labor Turnover Survey (JOLTS report): National employment data published monthly by the Bureau of Labor Statistics can help track hiring and firing by specific sectors of the economy. 
• Consumer debt levels: Another metric provided by the Federal Reserve, this includes household mortgage data, student loans, auto loans and consumer credit card debt.
• Core PCE: The personal consumption expenditures price index tracks the spending levels of consumers and is used as an indication of inflation. 

Data can be a useful tool for CFOs to make decisions and advise leadership teams, but it is imperative to find the data that matters to your organization so that it is useful.  Many of the reports provided by the Fed or the BLS need to be sorted and sliced to conform to your specific industry or your business, so knowing what data not to use is just as important as the source of data you select.

Staying ahead

CFOs must view their business and the market through a wider lens. They must consider how external events and industry headwinds may impact their business when making decisions. 

The Federal Reserve meetings and the behavior that follows are much easier to prepare for/react to so it’s important to understand the impact of a cut or an increase but also to understand the Fed’s vision to anticipate impactful changes that can greatly alter your strategy.

The election is a bit more difficult because aside from understanding the basic ideologies of both parties, there is no way to accurately predict exactly how the results of the election will impact your business. The emphasis for “election prep” should be on multiple scenarios to avoid banking on one side or another.

Written by Nick Florio. Originally published by CFO Dive.