This is the time of year when C-suites and corporate boards meet to discuss growth plans for the year ahead.
In light of the price action in financial markets, those dicussions are going to be much different than they would have been a month ago. Borrowing costs are skyrocketing and uncertainty about the economy is quickly turning into certainty there will be a recession.
Who can justify growth plans in this environment?
Certainly there are businesses out there that are doing fine and will grow but at the margin, the prospects for corporate spending are taking a big downgrade and we're rapidly nearing (past?) the point where cost cuts and layoffs are coming.
That's the problem with the blunt instrument of monetary policy. Additional capacity would easy supply chains and bottlenecks while adding competition. Instead, we'll get a retrenchment in that kind of spending.
Lots of people were scratching their heads two weeks ago when the White House floated refilling the SPR at $80 per barrel. The reason they put that out there is because they need oil companies to drill. If not, there will be an undersupply of crude later. Right now it's looking like it will hit in 2024. So Democrats may have saved the midterms but will get the payback in the 2024 general election.
Any oil company that was thinking about growth capex in 2023 has undoubtedly scaled that back now. For the Fed though, that could also boomerang. The lack of investment into all commodities will leave the market short of supplies and eventually to another price spike down the road.
For every degree central banks over-tighten now they'll pay the price down the road.
