On Wednesday, the Bureau of Labor Statistics released data showing the Consumer Price Index rose 8.5% over the past year as of July. The number showed inflation had cooled from 9.1% the prior month, somewhat easing fears of a recession.
On a recent episode of “Influencers with Andy Serwer,” before the latest inflation numbers were released, ServiceNow (NOW) CEO Bill McDermott predicted that, if a recession comes, it would not pose a long-term threat to the U.S. economy.
“I’m actually really optimistic right now that you could have something technical, short-lived, and I think the economies are actually going to be fine,” McDermott told Yahoo Finance.
While inflation eased slightly this month, prices began to spike last year amid supply chain constraints and a strong job market. In efforts to mitigate rising prices, the Federal Reserve has been steadily increasing interest rates.
The country has also recently experienced two consecutive quarters of decline in GDP and is currently seeing an inversion of the U.S. bond market yield curve. Both trends traditionally signify a recession and along with high inflation, have only intensified fears that the U.S. is on the verge of one.
Yet, the U.S. labor market remains strong. Just last week, the Labor Department’s monthly jobs report showed 528,0000 new jobs, bringing the unemployment rate down to 3.5%. That’s roughly the same rate as before the onset of the COVID-19 pandemic in January 2020 and far off the pandemic high of 14.8%.
“I do believe that as the monetary policy becomes a little bit more predictable, and perhaps even loosens, let’s just say, a year from now,” McDermott stated, “if you see inflation numbers come down, and you see monetary policy stabilize, you’re going to see the markets run.”
McDermott leads ServiceNow, a cloud computing company based in Santa Clara, California with over 17,000 employees. Recent earnings reports have shown that cloud computing businesses have grown despite strong economic headwinds. For instance, in Microsoft’s last earnings report, cloud revenue was $25 billion, up 28% year over year.
For his part, McDermott says he sees a strong outlook for digital companies.
“The business for digital companies like ours is fantastic. I see the tailwind coming into the market again, where people are now saying, ‘Okay, I’ve done the great reprioritization. I know which platforms matter. I actually know what those platforms do on doubling down on digital transformation’,” McDermott said. “So, I see that tailwind, actually, reigniting even stronger than it was before these macro crosswinds became popular to talk about in the last 90 days. So, I think growth is back, especially for digital companies.”
Still, some aspects of the economy remain harder to predict. For instance, some experts fear the war in Ukraine could continue to drive up food and energy prices.
Yet, for the time being, oil prices have seen a pronounced decline since they peaked earlier this year. For instance, average gas prices in the U.S. recently dropped to $3.99 a gallon after peaking at roughly $5.02 in June. Ultimately, McDermott doesn’t think the war will do lasting damage to the U.S. economy.
“Of course, it’s a humanitarian crisis beyond belief. And we’re all heartbroken to see this happening. It shouldn’t be happening in the 21st century [and] is hard to actually stomach,” McDermott said. “But that aside, it won’t be the determining factor in the economy. I do think inflation is the big thing. So once inflation stabilizes or starts to come down, I think that is going to be a very, very good sign.”
Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
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