Sept. 27, 2023

How Are Interest Rates Impacting Spending? Evidence From The CFO Survey

Zach Edwards and Daniel Weitz

Monetary policy impacts the economy with long and variable lags. Firms' economic outlooks and their spending can provide insight into the extent to which increases in the target fed funds rate have transmitted to the economy. In the most recent CFO survey, we asked financial decision-makers whether interest rate hikes have caused them to pull back on their spending plans and whether further hikes would impact their firm. We find that compared to Q4 2022, a larger share of firms report that interest rates have curtailed their capital and non-capital spending plans. We also find evidence that maintaining the current policy stance will restrict the spending activity of even more firms, suggesting that the effect of increased interest rates has not yet been fully realized.

How Have Rate Hikes Impacted Firm Spending?

For the first time in over a decade, respondents to The CFO Survey cited monetary policy as their most pressing concern, slightly ahead of labor availability, inflation, and demand for their products/services.

Perhaps not surprisingly then, around 40 percent of respondents reported that the current level of interest rates has caused them to pull back on capital and non-capital spending, a sizeable increase from the roughly 30 percent of firms that responded similarly in the Q4 2022 survey.1

Furthermore, just over 5 percent of firms noted that they would pull back on spending if the present level of interest rates persisted for another 12 months. In all, just under half of firms surveyed reported that either capital or non-capital spending have been – or will be – impacted by the current level of interest rates.

That additional firms will pull back on spending absent any further increase in the target fed funds rate supports the notion of a gradual transmission of monetary policy to business spending. In other words, monetary policy operates with a lag.

The increase from the end of 2022 to this quarter in the share of firms whose non-capital spending was negatively impacted by rising interest rates is consistent with other measures collected in The CFO Survey. Since Q1 2022, the share of CFO survey respondents noting an increase in their net three-month change in non-capital spending declined from two-thirds of firms to under half. 

Many Firms Report No Impact of Rate Increases on Spending Plans

In addition to the roughly half of firms whose spending has been (or would be) tempered by the current level of interest rates, around 10 percent of firms noted that further increases would cause them to pull back on spending. Most of the remaining firms – one-third of all respondents – do not expect their spending to be impacted by changing interest rates either because they do not finance spending through borrowing or because their borrowing is insensitive to changes in rates.

Other Factors Also Weigh on Spending

Aside from interest rates, firms reported that other factors are causing them to pull back on spending. 

Over half of all firms noted economic uncertainty, roughly 40 percent reported weaker customer demand, and a third reported difficulty hiring employees as reasons for pulling back on spending.

Of course, a pullback in spending plans is distinct from a cessation of spending entirely. Results from our semiannual questions on capital expenditures show little change from Q1 2023 in the share of firms that expect to invest in structures, land, or equipment over the next six months. Furthermore, while about 72 percent of firms whose capital spending was not impacted by rising interest rates plan to invest in capital over the next six months, 68 percent of firms that were impacted by interest rates still plan to invest over the same period. Taken together, the survey results suggest a dampening in capital spending rather than a significant retrenchment.

Despite Pullback in Spending, CFOs Remain Optimistic

The interpretation of the results as a potential spending slowdown rather than a sharp contraction is further bolstered by CFOs' somewhat optimistic view of the trajectory of the U.S. economy in the next year. The index measuring optimism about the U.S. economy increased slightly from the second quarter, and the mean expected growth in real GDP over the next four quarters increased from 1.0 to 1.3 percent. Looking forward, firms expect conditions to broadly improve in 2024, with growth in prices, unit costs, and wages expected to decelerate, while employment and revenue growth are expected to accelerate relative to 2023.


In the last quarter, monetary policy has become the most pressing concern for financial executives. CFO survey respondents have cited interest rates as a reason they have pulled back on spending. CFO Survey respondents note other economic factors weighing on their spending plans, though to date, they report modestly higher optimism about their own companies' prospects and the economy as a whole, and revenue growth projections remain positive. This suggests economic growth may continue even as high interest rates put downward pressure on firms' spending.


Reported percentages of firms calculated after eliminating responses of "Not Sure" from the question asking if the current level of interest rates is causing them to pull back on capital/non-capital spending.

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