Dive Brief:

• CEO optimism in the economy rose this quarter to the highest level in two years as inflation cooled and the Federal Reserve forecast that in coming months it will start trimming the highest borrowing costs in 23 years, the Conference Board and Business Council found in a survey.
• “CEOs are feeling better about the economy,” Business Council Vice Chairman Roger Ferguson said, noting that 32% of those surveyed said conditions have brightened in the past six months, a 24-percentage-point surge since Q4. Thirty-six percent of CEOs believe the economic outlook will improve during the next six months compared with just 19% in Q4.
• At the same time, top executives “remain cautious about risks ahead,” Ferguson said in a statement, with 51% identifying political uncertainty this election year as the biggest business challenge. Looking beyond U.S. borders, 46% of the respondents said the spread of current wars poses the biggest business threat.

Dive Insight:

The CEO survey aligns with findings by Wolters Kluwer that 87% of large-company economists expect that the U.S. will achieve a “soft landing,” or avoid a recession as tight monetary policy slows inflation to the Fed’s 2% target. In December just 67% held that view, Wolters Kluwer said Friday.

Economists from companies ranging from Visa and KPMG to Ford and JPMorgan Chase marked up their median estimate for real gross domestic product growth this year to 2.1% from 1.6% in January, Wolters Kluwer said, citing a survey of more than 50 economists.

“I spend a lot of my time talking to businesses,” Richmond Fed President Tom Barkin said in a speech Thursday.

“With the exception of interest-sensitive sectors like banking and real estate, the tone has shifted decisively away from talking about a recession,” he said. “Now the phrase ‘soft landing’ enters every conversation.”

GDP will likely expand at a 3.4% annual rate this quarter compared with 3.3% during Q4, the Atlanta Fed forecast on Thursday.

“Some key indicators have been more than just solid,” Goldman Sachs Chief Economist Jan Hatzius said in a Feb. 5 research note, referring to 4.1% annualized GDP growth during the second half of last year and a 353,000 jump in hiring in January.

“Both numbers are well above our estimates of the long-term sustainable trends in real output and employment,” Hatzius said.

Still, the economy will probably not overheat, Hatzius said, predicting that the Fed will begin cutting the federal funds rate at the end of a two-day meeting on May 1.

The central bank this year will likely trim the main rate by a quarter point five times this year and three times in 2025, he said.

“Looking forward, I am hopeful but still looking for more conviction that the slowing of inflation is broadening and sustainable,” Barkin told the Economic Club of New York.

“No one wants inflation to reemerge,” he said. “And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down.”

Thirty-four percent of CEOs believe slowing inflation will offer the biggest lift to businesses this year, and 28% cited an easing in monetary policy as the most favorable change, the Conference Board and Business Council said, citing the Jan. 16-29 survey of 138 top executives.