Talk about recession and inflation has been a dominant topic on
second-quarter corporate earnings calls that are starting to flood in.

Recession fear is already dominating Washington. Now it’s gripping
corporate America.

CEOs across industries are increasingly grappling with the threat of
an economic slump — possibly in a matter of months — sparked by
rampant inflation and the Federal Reserve’s efforts to cool off prices
by rapidly rising interest rates.

Talk about recession and inflation has been a dominant topic on
second-quarter corporate earnings calls that are starting to flood in.
Many executives say they have given up trying to figure out whether
inflation has peaked and what the Fed is going to do about it and
shifted to preparing their businesses for a prolonged period of rising
prices and slower growth.

“The debate has shifted on inflation,” Asutosh Padhi, managing partner
overseeing North America at consulting firm McKinsey & Co., said in an
interview with POLITICO editors and reporters. “People have stopped
trying to forecast, at least clients I speak with, on how much and how
long” the run of inflation will last. “It’s permanent enough,
therefore let’s strategize to think what it means to lead through

In private conversations, top CEOs grumble about uncertainty over
whether inflation might cause the Fed to speed up rate hikes as well
as over what many say are fiscal policy missteps in Washington.
Surveys show business confidence is sagging, and consumer sentiment is
near record lows.

Some executives believe that Covid-era stimulus from President Joe
Biden’s $2 trillion American Rescue Plan contributed to spiking prices
— and fear that the situation could get worse as Democrats push to
pump more cash into the economy in a new budget package this summer.
On top of that, the strong chance that Republicans will retake the
House brings the prospect of a return to government shutdowns and debt
limit fights that plagued the economy during President Barack Obama’s

Both investors and executives are wrestling with one of the more
complicated — and in many ways unprecedented — moments in American
history, where the economy looks simultaneously strong, with solid job
growth and consumer spending, and also close to toppling over.

“There are very good numbers coming in,” said JPMorgan Chase CEO Jamie
Dimon on a call with analysts. “That’s the current environment. The
future environment, which isn’t that far off, involves rates going up,
maybe more than people think because of inflation.” Dimon, who warned
last month that investors should brace for an economic “hurricane,”
added that there is a “range of possible outcomes from a soft landing
to a hard landing.”

Wall Street indicators, including the direction of stock prices and
the dollar, now predict a recession will hit by early next year,
according to research from George Saravelos, global head of foreign
exchange research at Deutsche Bank. As recently as February, the Wall
Street consensus held that a slump would not arrive in the U.S. until
December 2024, after the next presidential election.

The unpredictability of the moment is being fueled by the unknown: Few
if any current Fortune 100 CEOs outside of Berkshire Hathaway’s Warren
Buffett have ever dealt with an inflationary environment like this
one. The 9.1 percent current annual rate of consumer price inflation
is the highest since 1981 when Dimon, among the longest-serving
big-company CEOs, was 25 and still at Harvard Business School.

And no living executive has experienced the aftermath of a global
pandemic that quickly forced the shutdown of much of the U.S. economy
for a year before the business activity was rebooted in a matter of

So executives’ uncertainty about how to manage their businesses,
coupled with consumer expectations at their lowest levels in nearly a
decade, could tip the U.S. toward recession if companies start
trimming investments and laying off workers and consumers stop

Banks like Goldman Sachs and Bank of America, along with some other
big companies, are still reporting mostly solid results for the second
quarter. It’s their outlook for the future that’s less rosy. Bank of
America CEO Brian Moynihan said on an analyst call Monday that the
bank had set aside reserves for a scenario in which the unemployment
rate rises from 3.6 percent now to 5 percent within the next five
months as Fed rate hikes take hold.

Goldman CEO David Solomon warned on the bank’s earnings call about the
persistence of price hikes. “We see inflation deeply entrenched in the
economy, and what’s unusual about this particular period is that both
demand and supply are being affected by exogenous events, namely the
pandemic and the war on Ukraine,” he said Monday.

And technology giant Apple plans to slow hiring and spending growth
next year in certain divisions to prepare for a possible slowdown,
Bloomberg reported.

By some measures, business sentiment continues to sink. The index of
future activity in the New York Fed’s Empire State business conditions
survey dropped 20 points in July to negative 6.2, only the third time
in the survey’s history the number has turned negative. Bank of
America analysts have shifted their outlook to predict a “mild”
recession next year. More recession calls are likely to follow as the
floodgates are now clearly open on such predictions.

“If I had one word to describe the current economic environment, it
would be ‘complicated,’” Morgan Stanley CEO James Gorman said on an
earnings call Thursday. “We have the Russian invasion of Ukraine. We
have historically low-interest rates with very significant rate
increases going on across the world. And we have the tail end of

Beyond Wall Street, some non-financial executives are sounding
simultaneously bullish and preparing for a sharp slowdown.

“It’s something we are all watching,” Bill Newlands, CEO of alcoholic
beverage company Constellation Brands, said on the company’s quarterly
earnings call late last month. “It’s certainly going to be an
interesting year relative to questions around inflation and around the

Many CEOs at companies including food manufacturer McCormick & Co.,
automobile seller CarMax and shipping firm FedEx are talking on calls
about “levers” they could pull in the event that a recession seems
imminent, including reducing investments and trimming staff.

“I’ve been talking to a lot of people who run big companies and none
of them think inflation has peaked,” said the CEO of a major financial
firm, who asked not to be identified by name to speak frankly.
“Really, the only question is about whether the recession is shallow
or deeper and more prolonged.”

The CEO took issue with the White House for mainly listening to its
own economists rather than front-line business leaders. “What I would
criticize the administration for is they rely on economists rather
than those deeply engaged in the economy. And it’s been hard or
impossible for any economist to get any of this right because of the
incredibly unique nature of all these disruptions.”

Another CEO of a financial titan also criticized the White House for
consulting with forecasters more than people in business. “It’s
obvious to everyone in the world that they rely on economists rather
than real-world business intelligence,” the executive said. “And that
doesn’t work when there are so many things going on that are

The White House has said its top officials meet regularly with
corporate executives to address their concerns across the economy.

And some leading executives rejected criticism of the administration.
“They have been very open and solicitous of input from us and we have
been invited to the White House multiple times to talk about supply
chain and logistical issues,” a senior technology manufacturing
executive told POLITICO.

A spokesman for United Airlines said: “Our CEO and other leaders have
engaged with the White House and across the Administration on a range
of policy issues including covid safety and economic recovery, job
creation, infrastructure, sustainability, and other issues. We’re
always pleased to share our views on these important discussions, and
they’re always open to our input.”

Academics themselves acknowledge the extreme difficulty of predicting
where this economy is heading and admit they have mostly been wrong so
far about inflation being temporary or having peaked.

“One thing that makes this so hard to model is that we keep getting
shocked aftershock, from the Delta strain of covid to Omicron and the
war in Ukraine, and nobody really predicted all those,” said Austan
Goolsbee, a University of Chicago economist and former top adviser to

“And the normal business cycle is driven by cyclic parts of the
economy like housing and consumer durable goods. In this downturn,
many of those cyclical went up, and what led to recession this time
during covid was a decline in services.”

Goolsbee said the Fed is well-positioned to influence demand by
raising interest rates for sensitive sectors of the economy like
housing. But inflation is being driven more by formerly locked-down
Americans cranking up pent-up demand for services like restaurants and
travel, which the central bank has less of an ability to affect with
higher interest rates. “And all this does make a near-term and
potentially sharp recession much more of a risk.”